Investment Pitches

Pitch Summary:
Miller Industries is the world's largest manufacturer of towing and recovery equipment with four manufacturing facilities in the US (its core market) and two in Europe. The company is the dominant player in its space, with a large stable of brands and the largest distribution network in North America, through which it sells products across all 50 states. Miller has a long track record of steady growth and consistent returns with a conservative balance sheet. Further, its management team has a history of sound capital stewardship and dividend payments to shareholders. We believe the company will benefit from ongoing customer demand tailwinds and a favorable pricing environment, while recent capital expenditures and M&A should benefit the margin profile.

BSD Analysis:
Diamond Hill's thesis for Miller Industries emphasizes the company's dominant market position and defensive business characteristics in the specialized towing equipment industry. The manager values Miller's comprehensive brand portfolio and extensive North American distribution network, which create significant barriers to entry for competitors. The company's track record of steady growth and consistent dividend payments demonstrates management's disciplined capital allocation approach. Diamond Hill anticipates continued demand growth driven by increasing vehicle complexity and regulatory requirements for specialized towing equipment. The favorable pricing environment reflects the company's market leadership and customer relationships built over decades. Recent capital investments and strategic acquisitions should enhance operational efficiency and expand product capabilities. The conservative balance sheet provides financial flexibility while the recurring nature of replacement demand offers revenue stability. Management's focus on shareholder returns through dividends aligns with Diamond Hill's value-oriented investment approach.

Pitch Summary:
Ducommun is a critical Tier 1 and Tier 2 supplier of advanced material aerostructures and electrical components to the defense and commercial markets. Via targeted acquisitions, the company is increasing its higher-margin engineered and aftermarket business. Simultaneously, management is working to improve organic margins by reorganizing its operational and physical footprint. We are particularly attracted to Ducommun's electronic systems business, which engineers, manufactures, fabricates and integrates a wide range of high-performance components and systems for commercial and military aircraft, missile systems, ships and radars. While we believe the market sees Ducommun as a commercial aerospace stock, we believe management's focus on the defense side of the company's business is bearing fruit, and we believe it will capitalize on a productive M&A strategy moving forward.

BSD Analysis:
Diamond Hill's investment thesis for Ducommun centers on the company's strategic transformation from a commercial aerospace supplier to a diversified defense contractor with higher-margin capabilities. The manager appreciates management's dual approach of targeted acquisitions to expand engineered solutions and operational restructuring to improve organic margins. The electronic systems division represents a key differentiator, providing mission-critical components across multiple defense platforms including aircraft, missiles, and radar systems. Diamond Hill believes the market undervalues Ducommun's defense exposure, viewing it primarily through a commercial aerospace lens. The thesis relies on continued defense spending growth and the company's ability to capture higher-value content through technological capabilities. Management's M&A strategy appears focused on acquiring complementary technologies that enhance margin profiles. The operational footprint optimization should drive efficiency gains while the aftermarket business provides recurring revenue streams.

Pitch Summary:
Fresh egg producer Cal-Maine Foods has positioned itself well to capitalize on the growing trend toward cage-free and specialty eggs. In May, the US Supreme Court upheld Proposition 12, whereby California can dictate only cage-free eggs be sold in the state — an outcome which will likely open the door for other states to either institute or maintain similar mandates, and which should drive increased long-term demand for Cal-Maine Foods' eggs.

BSD Analysis:
Diamond Hill presents a compelling regulatory-driven thesis for Cal-Maine Foods centered on the structural shift toward cage-free egg production. The Supreme Court's upholding of California's Proposition 12 creates a significant competitive moat for Cal-Maine, which has proactively invested in cage-free infrastructure. The manager anticipates this regulatory precedent will cascade to other states, creating sustained demand tailwinds for specialty egg products. Cal-Maine's market leadership position and operational scale provide advantages in meeting increased cage-free demand while maintaining cost competitiveness. The thesis relies on both regulatory momentum and consumer preference shifts toward higher-welfare animal products. Diamond Hill views the company as well-positioned to capture premium pricing for specialty eggs while benefiting from potential market share gains. The long-term demand outlook appears structurally positive as regulatory requirements expand beyond California.

Pitch Summary:
Civitas Resources is an oil and gas producer focused primarily on the DJ Basin in Colorado. The company announced it would acquire assets in the Permian Basin in Q2, which prompted a near-term sell-off in the share price. However, with the acquisition now complete and oil prices rising against a backdrop of OPEC+ production cuts, earnings have recovered, and the share price rebounded accordingly in Q3.

BSD Analysis:
Diamond Hill maintains a bullish stance on Civitas Resources following the company's strategic expansion into the Permian Basin. The manager views the initial market sell-off as a temporary reaction to acquisition uncertainty rather than fundamental concerns. The thesis centers on the company's dual-basin strategy combining DJ Basin operations with newly acquired Permian assets. Rising oil prices supported by OPEC+ production cuts have validated the timing of the acquisition and driven earnings recovery. The rebound in share price during Q3 demonstrates market recognition of the strategic value creation. Diamond Hill appears confident in management's ability to integrate the Permian assets effectively while maintaining strong operational performance in the DJ Basin. The position benefits from both operational leverage to higher oil prices and the expanded geographic diversification of production assets.

Pitch Summary:
Worley (Long +10%) shares rallied after reporting strong FY23 results and providing an upbeat qualitative outlook for FY24. Worley has multi-year revenue growth tailwinds from the recovery in conventional energy capex, growth in energy transition spend and the execution of major project wins secured over the last 12 months. Worley is in the early innings of the pivot to 'green' energy opportunities. We believe the market is starting to shift its view that the company is no longer a pureplay legacy oil and gas contractor but more a diversified engineering company that is critical to enable the energy transition.

BSD Analysis:
L1 Capital positions Worley as a key beneficiary of the global energy transition, highlighting the company's evolution from a traditional oil and gas contractor to a diversified engineering services provider. The investment thesis is supported by multiple revenue growth drivers including recovering conventional energy capital expenditure, increasing energy transition spending, and execution of major project wins secured over the past year. The fund emphasizes Worley's strategic positioning in the early stages of the green energy pivot, viewing the company as critical infrastructure for enabling the energy transition. This transformation story represents a significant re-rating opportunity as the market begins to recognize Worley's expanded capabilities beyond legacy oil and gas services. Strong FY23 results and positive FY24 guidance provide fundamental support, while the company's diversified engineering expertise positions it to capture growth across both traditional and renewable energy sectors.

Pitch Summary:
James Hardie (Long +17%) shares rose after announcing first quarter earnings well above market expectations and strong second quarter earnings guidance. Having built exposure on shareprice weakness early in the quarter, the portfolio benefitted from a 17% share price rise during the portion of the quarter that we held the stock. There continues to be uncertainty in terms of the impact that rising interest rates will have on housing, and on repair and remodel demand. However, the company provided confidence that it can maintain strong operating margins even allowing for a sharp decline in fibre cement volumes. This is driven by its more resilient end-market exposure, the benefits of its product mix shifting towards higher-margin products, and its proactive cost management program.

BSD Analysis:
L1 Capital demonstrates tactical trading acumen with James Hardie, building exposure during share price weakness and benefiting from strong earnings performance. The fund's thesis centers on the company's ability to maintain robust operating margins despite potential volume declines in a challenging housing market environment. Key defensive characteristics include James Hardie's resilient end-market exposure and strategic shift toward higher-margin product offerings, which provide earnings stability amid housing market uncertainty. The manager highlights management's proactive cost management capabilities as a crucial factor in preserving profitability during potential downturns. While acknowledging headwinds from rising interest rates impacting housing and repair/remodel demand, L1 Capital views the company's operational flexibility and margin resilience as key differentiators. The strong first quarter results exceeding expectations and positive second quarter guidance provide near-term momentum for the investment thesis.

Pitch Summary:
Seven Group (Long +26%) shares continued to rise after reporting strong FY23 results in August and providing a positive outlook for the FY24 period with high-single-digit EBIT growth expected. WesTrac and Coates performed strongly, with earnings well positioned to grow over the medium term as investment in mining, construction and infrastructure continues to increase. Seven also holds a 71.6% shareholding in Boral, one of the largest building and construction materials companies in Australia. Boral's earnings have been impacted by surging input costs and significant wet weather. Under new leadership, and in a normalised trading environment, we believe Boral has the potential to double earnings over the medium term from FY23 levels.

BSD Analysis:
L1 Capital presents Seven Group as a compelling industrial play benefiting from Australia's infrastructure and mining investment cycle. The fund highlights strong performance from core operating divisions WesTrac (Caterpillar equipment dealer) and Coates Hire, which are well-positioned for medium-term earnings growth driven by continued investment in mining, construction, and infrastructure projects. Management's guidance for high-single-digit EBIT growth in FY24 provides near-term visibility. A significant value driver is Seven Group's 71.6% stake in Boral, Australia's largest building materials company, which L1 Capital believes offers substantial upside potential. Despite recent headwinds from input cost inflation and weather disruptions, the manager expects Boral to double earnings from FY23 levels under new leadership in normalized operating conditions. This dual exposure to both industrial services and building materials provides diversified leverage to Australia's construction and mining sectors.

Pitch Summary:
Cenovus (Long +23%) shares rallied as WTI oil prices rose to ~US$91/bbl over the month, the highest level since November 2022. The company also had tailwinds from higher refinery margins, particularly in North America which remains their key exposure. Cenovus continues to generate strong free cash flow at current oil price levels, with the long-life nature of its oil sands assets and its low cost of production providing a break-even oil price at around ~US$40/bbl. We estimate the company can reach its net debt target in early CY24, enabling a step-up in shareholder returns through on-market share buybacks.

BSD Analysis:
L1 Capital maintains a bullish stance on Cenovus Energy, highlighting the company's strong operational leverage to rising oil prices and refinery margins. The fund emphasizes Cenovus' competitive advantage through its low-cost oil sands operations with break-even levels around US$40/barrel, providing substantial cash flow generation at current oil prices above US$90/barrel. The investment thesis is underpinned by the long-life nature of Cenovus' assets and strong free cash flow generation capabilities. A key catalyst identified is the company's approaching net debt target achievement in early 2024, which would unlock enhanced shareholder returns through share buyback programs. The manager views Cenovus as well-positioned to benefit from sustained higher oil prices and improved refining margins, particularly in North American markets where the company has significant exposure.

Pitch Summary:
Both the L1 Long Short Fund and the L1 Capital Catalyst Fund (see September 2022 Catalyst quarterly report) are invested in Santos (an ASX-listed oil and gas exploration and production company with a current market capitalisation of ~A$24b and an enterprise value of ~A$30b). This investment was based on its portfolio of quality long-life assets and attractive valuation in the context of an elevated oil price environment, supported by long-term underinvestment in the sector. Despite strong operational execution under CEO Kevin Gallagher, Santos' share price has lagged its global and domestic peer group, across most time periods. Over the last three years Santos' total shareholder return has been the lowest across the entire peer group. In our view, this poor relative share price performance can be attributed to multiple factors beyond regulatory overhangs (most particularly Barossa, a key growth project awaiting regulatory drilling approval), including smaller relative capital returns, a disparate growth strategy and, in particular, an under-appreciated, LNG-focused equity story. We believe a structural separation of the Company's Liquefied Natural Gas ('LNG') assets would help to unlock the inherent value of Santos' assets and ultimately present a significant value-creating outcome for shareholders. Specifically, we propose that the Company's Australian oil and gas assets and Alaskan oil assets ('DemergeCo') should be separated via a demerger and distributed to Santos' shareholders, leaving Santos as an LNG 'pure play' company ('LNGCo'). We have recently written to Santos' Board of Directors encouraging them to initiate a strategic review to fully assess this proposal. Our analysis suggests a sum-of-the-parts valuation of LNGCo and DemergeCo would be equivalent to >A$10.50 per share representing an uplift of ~43% above the current share price of A$7.35. As a result of sustained relative share price underperformance, Santos trades at a significantly discounted valuation to its key peers, despite its strong EBITDA growth outlook. This valuation discount to its peers is despite: A high-quality growth profile: Specifically, Santos' Pikka project in Alaska is expected to deliver strong returns and the Barossa project will bring near-term LNG volumes to an increasingly tight market, and Strong operational execution: Operating costs across the portfolio have decreased over time despite broad inflationary pressures. For example, the Pikka project remains on-time and on-budget (as per the Company's disclosure), which has become a rarity for developments within Australia and North America. We believe Santos' share price is trading materially below its intrinsic value and is disconnected from peer valuations in the sector due to the following key reasons: 1. Market providing inadequate credit for the LNG equity story: Investors seeking LNG exposure have often chosen alternative stocks to do so, with Santos' LNG equity story (including increasing proportion of spot-linked volumes) underappreciated in our view relative to its peers. 2. Smaller relative capital returns and balance sheet capacity: Santos' recent capital returns have lagged Woodside (its most comparable domestic peer) and its key U.S. peers, with Santos having used more of its balance sheet capacity to fund growth projects compared to these peers. 3. Portfolio complexity, growth strategy and project execution: We believe that the market is attributing close to zero value to Santos' upstream project pipeline (which includes Barossa and Pikka, as well as the Narrabri, Papua and Dorado projects), despite the fundamental quality of these projects, substantial capital invested to date and Santos' track record of execution. This partly reflects the relatively disparate range of growth projects across geographies and products (oil, domestic gas and LNG). We believe a structural separation of Santos' LNG assets will present the best long-term outcome for shareholders for the following key reasons: 1. Unlock Santos' valuation discount: We estimate that the valuation of LNGCo on a standalone basis would exceed more than the entire market capitalisation of Santos today, especially considering the scarcity value of such assets within the current macroeconomic backdrop. 2. Greater management focus: Standalone management teams and governance structures would further improve project execution and market sentiment towards each company's prospects. In particular, DemergeCo's assets would benefit from enhanced management focus to ensure their longevity and backfill plans materialise. 3. Tailored capital allocation: LNGCo and DemergeCo would be established with capital allocation frameworks and balance sheet positions better tailored towards the different asset characteristics and shareholder bases that LNGCo and DemergeCo will attract. 4. Strong standalone equity stories that will appeal to different investor bases: In particular, we believe that LNGCo will be highly attractive to a global shareholder base (with a longer-term outlook and greater appreciation of the LNG assets' strategic value) that may not invest in Santos today due to the shorter-life domestic market profile of DemergeCo's assets. 5. Significant strategic appeal for LNGCo: We believe the highly attractive group of assets within LNGCo will create a floor to support a favourable trading valuation. This was observed with BG group (a formerly LSE-listed LNG-focused oil and gas business), which consistently traded at a premium to global oil majors prior to ultimately being acquired by Shell in 2016. 6. Attractive demerger structure: A demerger would likely receive 'rollover relief' for Santos shareholders with no tax leakage, and both DemergeCo and LNGCo should qualify for ASX 100 index inclusion.

BSD Analysis:
L1 Capital presents a compelling case for Santos as an undervalued energy play trading at a significant discount to peers despite superior EBITDA growth prospects. The fund's core thesis centers on a proposed structural separation of Santos' LNG assets from its domestic oil and gas operations, which they believe could unlock over 43% upside to A$10.50 per share. The manager highlights Santos' high-quality asset portfolio, including the on-budget Pikka project in Alaska and the Barossa LNG development, while noting strong operational execution under CEO Kevin Gallagher. Key value drivers include Santos' underappreciated LNG exposure in a tightening global market, substantial growth projects that the market appears to value at zero, and the potential for enhanced capital allocation through asset separation. The proposed demerger would create LNGCo as a pure-play global LNG company and DemergeCo focused on Australian domestic markets, each appealing to different investor bases. L1 Capital argues that Santos' current 4.2x EV/EBITDA multiple significantly undervalues the company relative to peers trading at 5.7x-6.3x despite inferior growth profiles.

Pitch Summary:
CVS is a diversified health care conglomerate with leading positions across multiple aspects of health services. The company owns the #1 pharmacy benefit manager, #1 retail pharmacy, #1 specialty pharmacy, #3 commercial health insurer and #3 Medicare Advantage organization in the U.S. Managed care and pharmacy benefits management have proven to be good businesses over time, characterized by healthy underlying growth and excellent free cash flow generation. CVS has underperformed the S&P 500 by more than 40 percentage points over the past 12 months, impacted by a cloud of company-specific and legislative concerns. While we are not dismissive of these potential risks and headwinds, we believe the market has become overly pessimistic. This created an attractive opportunity to invest in what we view as a durable, competitively advantaged and well-managed enterprise at a high-single-digit multiple of earnings.

BSD Analysis:
Oakmark presents CVS as an undervalued healthcare conglomerate with dominant market positions across the health services value chain. The managers emphasize CVS's leadership positions including #1 rankings in pharmacy benefit management, retail pharmacy, and specialty pharmacy, plus top-3 positions in commercial insurance and Medicare Advantage. They highlight the proven durability of managed care and PBM businesses, which generate healthy growth and excellent free cash flow over time. The investment thesis centers on market overreaction to company-specific and legislative concerns, creating a 40+ percentage point underperformance versus the S&P 500. While acknowledging potential risks, Oakmark believes pessimism has created an attractive entry point at high-single-digit earnings multiples. They view CVS as a durable, competitively advantaged enterprise with strong management executing across multiple healthcare verticals. The pitch emphasizes the disconnect between fundamental business quality and current depressed valuation reflecting excessive market concerns.

Pitch Summary:
Cisco is the leading networking solutions company. Networking equipment becomes more important as businesses modernize their IT infrastructure, and Cisco is well positioned to capture this demand given its broad portfolio and highly effective go-to-market strategy. Cisco is transitioning away from selling mainly transactional hardware and toward selling more software and subscriptions. This shift is expected to accelerate revenue growth, improve operating margins and build recurring revenue. Despite these notable business improvements, Cisco still trades near a trough valuation relative to the S&P 500 Index. More recently, Cisco announced its intention to acquire Splunk, a leader in security and observability, adding to its already strong position in the increasingly important security market. At a low-teens multiple of our estimate of normalized earnings, Cisco is trading comfortably below our estimate of intrinsic value.

BSD Analysis:
Oakmark views Cisco as an undervalued technology leader benefiting from IT infrastructure modernization trends while trading at trough valuations. The managers emphasize Cisco's market-leading position in networking solutions with a broad portfolio and effective go-to-market capabilities. They highlight the strategic business model transition from transactional hardware to higher-margin software and subscriptions, which should accelerate growth and improve profitability. The investment thesis centers on the disconnect between improving business fundamentals and depressed relative valuation versus the S&P 500. The pending Splunk acquisition strengthens Cisco's position in the critical security market, adding to long-term growth prospects. At low-teens normalized earnings multiples, Oakmark sees significant upside to intrinsic value. The pitch emphasizes the compelling combination of secular IT modernization tailwinds, business model improvements, and attractive valuation for a market-leading technology franchise.

Pitch Summary:
Phillips 66 is an integrated downstream energy company that operates refineries, pipelines, chemical manufacturing facilities and retail fuel stations. Like most U.S.-based oil refiners, Phillips 66 is currently enjoying abnormally high margins thanks to today's historically tight market for refined products. Given the market's concern that current refining margins are unsustainable, Phillips 66 trades for just 7x this year's EPS. However, unlike other refiners, the majority of Phillips 66's intrinsic value comes from its non-refining business segments, providing a more stable base of cash flow. Even if refining margins eventually return to historical average levels, we believe we are paying a single-digit multiple of normalized earnings for a collection of advantaged midstream and downstream assets. We think this is an attractive price for a solid business where management is returning the vast majority of free cash flow to shareholders.

BSD Analysis:
Oakmark presents Phillips 66 as an undervalued integrated energy company trading at just 7x earnings due to market concerns about unsustainable refining margins. The managers differentiate Phillips 66 from pure refiners by highlighting that most intrinsic value derives from stable non-refining segments including pipelines, chemicals, and retail. This diversification provides more predictable cash flows compared to cyclical refining operations. Even assuming refining margins normalize to historical levels, Oakmark believes they're acquiring advantaged midstream and downstream assets at single-digit normalized earnings multiples. The investment thesis emphasizes management's shareholder-friendly capital allocation, returning the vast majority of free cash flow to investors. They view current market pessimism about refining sustainability as creating an attractive entry point for a diversified energy business with stable cash flow generation. The pitch highlights the defensive characteristics of the non-refining portfolio while benefiting from current elevated margins.

Pitch Summary:
Centene is one of the largest health insurers in the U.S. The company specializes in three major government-sponsored programs: Medicaid, Marketplace and Medicare Advantage. Each of these benefits from long-term secular tailwinds. In Medicaid, states are steadily outsourcing their programs to managed care companies, like Centene, as it helps states reduce costs and improve care quality. Indeed, Managed Medicaid penetration has increased from 25% of total Medicaid spend in 2010 to 60% today, and we expect further gains over time. In Marketplace, growth is driven by the trend toward more individuals buying health insurance. Centene holds the #1 market share in both of these programs and is well positioned to capitalize on their continued growth. The stock trades for 10x consensus 2024 EPS, but this doesn't tell the whole story. Past missteps in Centene's Medicare business will result in that segment losing $0.80 per share next year. We believe Centene can turn Medicare around and generate positive earnings in the next few years. This could increase EPS by more than $1 per share and reduce the P/E ratio to just 8.5x. We think that's good value for a business that generates healthy returns on capital and is capable of growing EPS at a low double-digit rate.

BSD Analysis:
Oakmark identifies Centene as an undervalued healthcare leader benefiting from powerful secular trends in government-sponsored insurance programs. The managers emphasize the company's dominant market positions in Medicaid and Marketplace, with managed Medicaid penetration growing from 25% to 60% since 2010. They view the current 10x P/E as misleading due to temporary Medicare losses of $0.80 per share, creating a compelling value opportunity. The investment thesis centers on Medicare turnaround potential that could add over $1 per share in earnings, reducing the valuation to just 8.5x. Oakmark highlights Centene's ability to generate healthy returns on capital while growing earnings at low double-digit rates. The pitch emphasizes long-term tailwinds from state outsourcing trends and increasing individual insurance adoption. They see current weakness as an attractive entry point for a business with strong competitive positioning in growing government healthcare programs.

Pitch Summary:
Corteva is a leading provider of seed and crop protection chemicals. We believe the seed and crop protection markets have sizeable barriers to entry due to the duration and magnitude of investment required to compete. Both industries require constant innovation: Farmers expect seed yield improvement each year while nature develops immunity to crop protection chemicals over time. As a result, advantages accrue to the largest players with the most R&D resources. Within this context, we believe Corteva is very well positioned. The company has scale, well-recognized brands, a loyal customer base, and a promising R&D pipeline. In addition, we see idiosyncratic opportunities for Corteva to improve its profitability over time, and we believe the current management team is executing well against this opportunity. More recently, the stock has been pressured by near-term headwinds related to inventory destocking and declining crop prices. We see this weakness as an opportunity to invest in a high-quality and defensible business at a discount to both its own historical trading multiple and private market transactions.

BSD Analysis:
Oakmark presents Corteva as a compelling value opportunity in agriculture, emphasizing the company's competitive moat through high barriers to entry and R&D advantages. The managers highlight how constant innovation requirements in seeds and crop protection favor large-scale players like Corteva with substantial R&D resources. They view the company as well-positioned with strong brands, customer loyalty, and a promising pipeline. The investment thesis focuses on idiosyncratic profitability improvement opportunities under current management execution. Recent stock weakness from inventory destocking and declining crop prices creates an attractive entry point at discounted valuations. Oakmark sees this as a chance to acquire a high-quality, defensible agricultural business below both historical multiples and private market valuations. The pitch emphasizes the durable competitive advantages in an industry requiring continuous innovation and significant capital investment.

Pitch Summary:
Danaher is a global leader in life sciences tools and diagnostics. We are impressed by Danaher's excellent track record of creating shareholder value through smart capital allocation and world-class operational execution. The company's business mix has shifted dramatically in recent years following a series of transformative acquisitions and divestitures. We believe these portfolio improvements leave the company attractively positioned in some of the industry's fastest growing, most profitable niches within life sciences. Near-term headwinds related to the pandemic are overshadowing this attractive long-term outlook, in our view. More specifically, Danaher sells diagnostic tests and critical inputs needed for manufacturing Covid-19 vaccines. As Covid-19 demand has normalized, Danaher experienced sales headwinds and channel destocking, pressuring its stock price. The shares now trade at a discount to both peers and private market transactions, giving us an attractive opportunity to invest in what we view as a high-quality, resilient business at a discounted valuation.

BSD Analysis:
Oakmark views Danaher as an attractively valued life sciences leader trading at a temporary discount due to COVID-related headwinds. The managers highlight the company's strong capital allocation track record and operational excellence, noting significant portfolio improvements through strategic acquisitions and divestitures. They believe Danaher is well-positioned in fast-growing, profitable life sciences niches despite near-term pressure from normalizing COVID demand and channel destocking. The investment thesis centers on acquiring a high-quality, resilient business at a discount to both peer valuations and private market transactions. Oakmark sees the current weakness as a compelling entry point for a company with demonstrated value creation capabilities. The pitch emphasizes the temporary nature of current headwinds versus the attractive long-term positioning in life sciences tools and diagnostics.

Pitch Summary:
IQVIA is a leading provider of clinical trials and related health care technology formed through the merger of Quintiles and IMS Health in 2016. We believe that IQVIA's leading data and digital capabilities enable the company to gain share of addressable clinical trial-related spending as pharma and biotech companies outsource these services to contract research organizations (CROs). In addition, we think that IQVIA has growth opportunities from delivering real-world evidence to biopharma companies and other health care providers using data to meet regulatory and reimbursement mandates. CEO Ari Bousbib has a strong track record on both operations and capital allocation and significant skin in the game through his large equity holdings in the company. We were pleased to be able to add IQVIA to the portfolio near a trough multiple of roughly 15x our estimate of normal earnings despite the company's prospects for sustainable above-average growth.

BSD Analysis:
Oakmark initiated a position in IQVIA during Q3 2023, viewing it as an attractive entry point amid healthcare sector weakness. The managers believe IQVIA's leading data analytics and digital capabilities position it to capture increasing market share as pharmaceutical and biotech companies continue outsourcing clinical trial services to contract research organizations. The investment thesis centers on IQVIA's dual growth drivers: expanding CRO market share and new opportunities in real-world evidence delivery to meet regulatory requirements. Management quality appears strong under CEO Ari Bousbib, who has demonstrated operational excellence and prudent capital allocation while maintaining significant personal equity ownership. The valuation entry point of approximately 15x normalized earnings represents an attractive multiple for a company with sustainable above-average growth prospects. This contrarian healthcare sector investment reflects Oakmark's value-oriented approach of buying quality companies during temporary sector dislocations.

Pitch Summary:
SBUX is the premier roaster, marketer and retailer of specialty coffee in the world, operating in 83 markets. Through its more than 36,000 global stores (roughly 50% operated and 50% licensed) the company offers handcrafted coffee, tea and other beverages and a variety of food items. SBUX also sells a variety of packaged coffee and tea products and licenses its trademarks through other channels such as grocery and foodservice through a Global Coffee Alliance with Nestlé. In addition to its flagship Starbucks Coffee brand, the company sells goods and services under the brands Teavana, Seattle's Best Coffee, Ethos, Starbucks Reserve and Princi. SBUX's recently appointed CEO (March 2023), Narasimhan Laxman, reiterated the company's long-term plans for 10-12% revenue growth and 15-20% EPS growth while reporting fiscal 3Q23 earnings. Revenue will be driven by a combination of factors including unit growth, higher food "attach" rates (more food sold per cup of coffee), equipment innovation to speed throughput, and delivery expansion. In addition to the leverage of higher revenue across the company's fixed asset base, SBUX sees margin expansion from supply chain management opportunities and procurement efficiencies. We initiated a small position in August

BSD Analysis:
RiverPark initiated a position in Starbucks, attracted by the company's global coffee leadership and new CEO's ambitious growth targets. The manager emphasizes SBUX's dominant market position with 36,000 stores across 83 markets, utilizing a balanced mix of company-operated and licensed locations. The investment thesis is anchored on new CEO Narasimhan Laxman's long-term targets of 10-12% revenue growth and 15-20% EPS growth, suggesting significant operating leverage potential. Revenue growth drivers include unit expansion, increased food attachment rates, equipment innovation for faster throughput, and delivery expansion. The fund expects margin expansion through supply chain optimization and procurement efficiencies, while higher revenue provides leverage across the fixed asset base. SBUX's diversified brand portfolio including Teavana, Seattle's Best, and Starbucks Reserve, plus the Global Coffee Alliance with Nestlé, provides multiple growth vectors. The combination of global scale, operational improvements under new leadership, and margin expansion opportunities positions Starbucks for sustained outperformance in the specialty coffee segment.

Pitch Summary:
PepsiCo is a leading global beverage and snack food company with a portfolio of brands, including Lay's, Doritos, Cheetos, Gatorade, Pepsi-Cola, Mountain Dew, Quaker and SodaStream. The company, through its operations, authorized bottlers, contract manufacturers and other third parties, makes, markets, distributes and sells a wide variety of beverages and snack foods, serving customers and consumers in more than 200 countries and territories. PEP, through acquisitions, marketing, and product innovation has reinvigorated top line expansion and is now expected to grow revenues in the mid-single digit percent rate for the foreseeable future. We expect this revenue growth to drive margin expansion and free cash flow growth from $5.6 billion in 2022 to $12.3 billion in 2028. Based on this more than doubling of free cash flow and the company's 2.8% dividend yield, we believe we can achieve double digit rates of return from the stock regardless of the economic environment ahead. We initiated a small position in August.

BSD Analysis:
RiverPark initiated a position in PepsiCo, viewing it as a defensive growth story with significant cash flow expansion potential. The manager highlights PEP's diversified portfolio of leading brands including Lay's, Doritos, Gatorade, and Pepsi-Cola, distributed across 200+ countries and territories. The investment thesis centers on reinvigorated top-line growth through acquisitions, marketing, and product innovation, with mid-single digit revenue growth expected going forward. The fund projects dramatic free cash flow expansion from $5.6 billion in 2022 to $12.3 billion by 2028, representing more than a doubling over six years. This suggests significant margin expansion and operational efficiency improvements as the company scales. Combined with a 2.8% dividend yield, the manager expects double-digit total returns regardless of economic conditions, emphasizing PEP's defensive characteristics. The global reach, brand portfolio strength, and cash generation profile position PepsiCo as a reliable compounder in the consumer staples sector with both growth and income characteristics.

Pitch Summary:
MCD is the world's leading global foodservice retailer with over 40,000 locations in over 100 countries. Approximately 95% of McDonald's restaurants worldwide are owned and operated by independent local business owners under franchise licenses. This franchise model gives MCD enough control to drive sustainably high comparable store sales (same-store-sales or SSS) through quality controls, food sourcing agreements, and culinary and technological innovation, while delivering high operating and free cash flow margins. In addition, the company's restaurants deliver industry-leading value and have therefore performed well in good economies and bad. We believe that a combination of 3-4% SSS growth (11.7% in the recently reported 2Q23) and 3-4% new unit growth over the coming five years will drive 7-8% revenue growth and 12-15% EPS growth. The company generates greater than 30% free cash flow margins ($8+ billion expected for 2023), pays a $1.52 dividend (2.17% yield), and bought back nearly $4 billion of stock last year. We initiated a small position in August.

BSD Analysis:
RiverPark initiated a position in McDonald's, attracted by the company's asset-light franchise model and consistent cash generation. The manager emphasizes MCD's global scale with over 40,000 locations across 100+ countries, with 95% operated under franchise agreements. This model provides operational control while minimizing capital requirements and maximizing margins. The investment thesis projects 7-8% revenue growth driven by 3-4% same-store sales growth and 3-4% unit expansion, translating to 12-15% EPS growth through operating leverage. Recent performance validates this thesis with 11.7% same-store sales growth in Q2 2023. The fund highlights MCD's defensive characteristics, noting strong performance across economic cycles due to value positioning. Exceptional cash generation exceeding 30% free cash flow margins ($8+ billion expected for 2023) enables robust capital returns including a 2.17% dividend yield and $4 billion in share buybacks. This combination of defensive growth, margin expansion, and shareholder-friendly capital allocation makes MCD an attractive long-term holding.

Pitch Summary:
LMT is the world's largest aerospace and defense contractor. With about 70% of its $66 billion in revenue from the U.S. government, the company is well positioned to benefit from U.S. defense budget growth, historically 5%-6% per year, as well as increased global military spending. With a $158 billion backlog and almost 30% of its revenue coming from building F-35 aircraft with deliveries forecast to reach 180 per year (up from 141 in 2022) in the coming years, we believe the company could grow at a higher rate than overall defense budget growth and Street expectations over the next several years. Further, strategic acquisitions, debt repayment, a 2.9% dividend yield, and continued share buybacks from more than $6 billion per year of free cash flow should lead to even greater shareholder returns. We re-initiated a small position in August.

BSD Analysis:
RiverPark re-initiated a position in Lockheed Martin, viewing it as a defensive growth play benefiting from increased global defense spending. The manager highlights LMT's dominant market position as the world's largest aerospace and defense contractor, with 70% of its $66 billion revenue derived from the U.S. government. The investment thesis is supported by a massive $158 billion backlog providing multi-year revenue visibility and the F-35 program representing nearly 30% of revenue with production scaling from 141 to 180 aircraft annually. The fund expects LMT to outgrow both overall defense budget increases (historically 5-6% annually) and Street expectations, suggesting market share gains and operational efficiency improvements. Strong cash generation of over $6 billion annually enables multiple shareholder return mechanisms including a 2.9% dividend yield, share buybacks, debt reduction, and strategic acquisitions. This combination of defensive government revenue, production ramp-up, and capital allocation discipline positions LMT for sustained outperformance in the defense sector.