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Ruane Cunniff Makes One Significant Buy

- By Holly LaFon

On Tuesday, Ruane Cunniff (Trades, Portfolio) disclosed its first quarterly update since losing significantly on a position in Valeant Pharmaceuticals (VRX), a fast-growing drug maker accused of price gouging and a dubious relationship with a pharmacy. The firm's Sequoia Fund made only one large purchase during the third quarter, Dentsply Sirona (XRAY).


Sequoia owned Sirona, the original company, since 2011, according to its third-quarter letter. Sirona, a dental products maker, merged with Dentsply, a dental consumables company, in February to create the world's largest professional dental company, supplying to labs, dental offices and clinics worldwide. Dentsply Sirona has a global headquarters in York, Pennsylvania, international headquarters in Salzburg, Austria, and a market cap of $13.44 billion.

In the all-stock transaction, Sirona shareholders like Sequoia received 1.81 shares of Dentsply stock for each share they held of Sirona. At the end of the first quarter Ruane Cunniff (Trades, Portfolio) enjoyed 4,843,324 shares of the combined company.

Since Sequoia initiated a position in 2011, Dentsply's stock has risen 66.45%. Since the merger, the combined company's stock has gained 5.55%.

For the second quarter, the combined Dentsply Sirona garnered net sales of $1.02 billion, increased by 3.4% from the second quarter 2015, with the most growth occurring in consumables and its rest of world segment. Adjusting for acquisitions and discontinued products, Denstsply's internal growth increased by 2.4%.

The company also had second-quarter net income of $105.4 million, or 44 cents per diluted share, compared to $44.1 million, or 31 cents in second quarter 2015.

Dentsply has $1.17 billion in long-term debt and $312 million in cash on its balance sheet. Its return on equity in 2015 fell to its lowest in at least a decade at 10.78%, and shrunk to 5.05% in the second quarter from 7.86% the second quarter 2015. Net margins in 2015 fell to their narrowest since 2005, at 9.39%. For the past decade, the company has generated free cash flow annually.

During the second quarter, Dentsply also repurchased $100 million of its shares and paid $18 million in dividends. It has a dividend yield of 0.53%, near a five-year high. On Thursday afternoon, its per-share price hovers near a 10-year high at $57.82. The company's price-book ratio is near a 10-year low at 1.65, while its price-sales ratio has declined to a 10-year low at 3.22. Its price-book ratio is 26.75.

Dentsply acquired another company on June 27, MIS Implants Technologies, an Israel-based dental manufacturer of dental implant systems with a 65-country reach and annual net sales of $80 million. The all-cash acquisition cost $375 million and has a tentative closing target of the end of the year.

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This article first appeared on GuruFocus.