Trian Partners On Initiated Large Stake In Pentair

Shares of Pentair plc. Ordinary Share (NYSE: PNR) opened strong for trade on Tuesday after news broke that Nelson Peltz's Trian Partners has acquired a 7.24 percent stake in the company.

Ed Garden, Trian Partners CIO, was on CNBC recently to discuss why the fund initiated such a large stake in Pentair.

Great Value

"Why Pentair? We think in a market that is near all-time highs, we found a great value," Garden began. "We have a company that is a leader in its businesses: great brand names, great market shares, strong balance sheet, generates a ton of cash."

Garden elaborated, "And we bought it at a very attractive valuation, called at roughly 14 times cash EPS. So, in a relatively frothy market, we are really thrilled about the ability to become one of the largest shareholders in what we think is a great business."

Related Link: Dupont Desires Continued Trian Relationship, Despite Rejecting Seats On The Board

Cash EPS Basis

Garden was asked why he thinks the market is "relatively frothy" right now. He replied, "The company has a fair amount of intangible amortization which ...is a non-cash expense and therefore GAAP EPS understates the real free cash flow in this business. So, we look at it on a cash EPS basis similar to say a Valeant or a Danaher or a CVS Health who also tend to be valued on a cash EPS metric.

"And we think that increasingly the market will look at it that way as well, and we will be encouraging management to talk about cash EPS as they announce their earnings in the future.

"So, as I said, a prolific free cash flow generator that we bought at a great valuation, basically about an 8 percent free cash flow yield. And in this kind of market, I think that's real value," Garden concluded.

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