David Einhorn
I want to thank the Sohn Investment Conference for inviting me to speak. The last 3 years, I have presented 3 different European companies that none of you have ever heard of. So this year, I’m going to introduce 5 U.S. companies in transition, and you probably know all of them. While the market appears expensive in the U.S., we’re finding interesting investments where management is repositioning businesses toward more durable, more disciplined, and more cash-generative growth.
The value-creation question is whether management can convert the strategic change into better visibility, better margins, and eventually a better multiple. Here are our disclosures. I’d like to remind everyone that what I’m about to present is in our portfolio, and we may change our mind at any time. The cartoon says, “This is a real opportunity to do exactly as we’ve done them before.”
1. Repositioning Unlocks Hidden Value
The 5 companies are in different industries but pose similar investor questions. Can business-mix improvement or repositioning unlock value? The investment opportunity in each instance is the gap between the current perception and the future business quality. By the time we’re done, I hope you agree with me.
2. Acadia Starts Its Recovery
Acadia Healthcare is the leading pure-play behavioral health hospital and methadone-clinic operator in the United States. It operates 277 facilities with over 12,500 beds across the country that focus on some of the most acute mental-health conditions, including suicidal and homicidal ideation. The cartoon says, “Yes, I’m an institutional investor. In fact, I’m calling from one.” And aren’t most of us just a couple of “true social” posts away from needing Acadia’s help?
Acadia’s stock peaked at almost $90 in 2022 and came under pressure in 2024 following a New York Times investigation that alleged the company was holding patients involuntarily beyond medical need. In addition, it has faced sexual-assault claims and lost a landmark jury trial in 2023 that changed the perceived litigation-settlement costs. Likely driven by the New York Times investigation, the DOJ is currently conducting an exhaustive review of Acadia’s operations to ensure that it isn’t doing anything funny.
Our research has shown that Acadia’s average length of stay is in line with the industry, that medical experts in the field view the company as a reputable, responsible operator, and that the problems are not pervasive. In addition to the external pressures, Acadia also went on an overly aggressive expansion plan beginning in 2021. In the last 5 years, it has spent around $2 billion building out significant new capacity across its facility base.
The expansion was marred by operational missteps, including significant cost overruns and licensing delays. As a result, operating expenses ramped significantly while many of the newer facilities remain underutilized. While seasoned facilities operate at 70% to 80% occupancy, the newer facilities are currently operating in the 20% to 50% range. The result of all these pressures can be seen in the 5-year chart.
At the current price of around $25, the business trades at an EV-to-EBITDA multiple of just 8.3, compared to a historical low-double-digit multiple. As the behavioral-health market has long-term secular growth and structural undercapacity, the stock is cheap but has, in fact, found a catalyst. In January, Acadia’s board was finally fed up with the CEO and fired him. It hired Debbie Osteen, the previous CEO from 2018 to 2022, who tripled the stock price during her initial tenure.
The expansion CapEx has already been mostly spent. Now it needs to earn a return by ramping occupancy. Acadia needs to bring these recent openings to target occupancy rates of 70% to 80% and negotiate better reimbursement rates with managed-care payers. Universal Health Services’ Behavioral Health Division, Acadia’s largest public competitor, grew reimbursement rates at double Acadia’s pace in 2025.
The behavioral-health industry is still in structural undersupply, which is a tailwind for the company. EBITDA last year was $609 million, but if Acadia can improve occupancy and its reimbursement rates, the additional capacity built and already paid for over the last 5 years could generate an incremental $200 million in EBITDA. If we apply a recovery 10-times multiple to that, we get to a share price of around $56, which is more than double the current share price.
3. Centene Rebuilds Its Margins
Next up, we have Centene Corporation, ticker CNC. The company had its worst year in 2025, but we think the giant survives and comes out stronger on the other side. The cartoon says, “Ha-ha, trust me, you’ll blow through that $7,500 deductible in no time.” Centene is by far the largest of our companies in today’s presentation, with a market cap of $27 billion.
Centene is the leading ACA exchange and Medicaid insurer. It provides coverage to about 28 million people nationwide, or about 1 in 15 people. It is dramatically under-earning across all major business lines, with a straightforward path to margin normalization over the next 2 to 3 years. Adjusted pretax margins were 3.1% to 3.7% each year between 2016 and 2024. Last year, they collapsed to less than 1%, and this year they’re guiding to just over 1%.
For the Medicaid segment, we can see the evolution of premiums paid per member per month and medical cost per member on the left side. The medical margin is on the right side, which is before overhead. That’s the difference between the two. In 2021, it was an unusually good year, as people avoided the doctor during COVID for anything other than emergencies. But then pent-up care and drug-cost inflation started in 2022, and margins compressed from 12% all the way down to 5% by the second quarter of 2025.
States are required to pay Medicaid rates that produce actuarially sound margins over time. When the COVID distortion passed, the recent data showed unacceptably low margins, which enables Centene to request price increases. It will take another year to reflect full current costs and rates. The 2027 implementation of the One Big Beautiful Bill Act policy will mute the recovery somewhat, but the margin lift should occur by 2028.
The cartoon says, “See, I told you the free market would adapt.” The commercial segment is a short-cycle insurance business. Centene reprices its entire ACA Marketplace book over the course of a year. Centene cannot be forced to operate in geographies or lines of business that don’t produce acceptable margins.
It has already announced that the average price of its various ACA programs will increase about 35% this year. Due to the mix shift toward lower-tier plans, the actual increase in average premiums per member will be lower than the mid-30s, but still up significantly from the prior year, as management targets margin expansion of 400 basis points. The cartoon says, “I don’t think management has to worry. AI can never replace us.”
Centene spends significant cost and effort processing a very large number of claims. Artificial intelligence is well-suited to automate manually repetitive functions. We think Centene could be a huge beneficiary of AI in this fashion. In 2025, Centene suffered from a mismatch between rapidly evolving medical-cost trends and slower annual price adjustments. Both segments will get repriced, and margins should normalize within a few years.
ACA Marketplace enrollment should decrease significantly in 2026 as enhanced ACA subsidies expired at the end of 2025. This is factored into our normalized earnings number of $8.49 a share. Applying a conservative P/E of 10 to 12 times, we get to an $85 to $102 share price, compared to $56 today. It’s worth noting that the targets management issued in 2024 imply greater than $11 of EPS on the current revenue base, so there could be even more upside.
4. Fluor Rebuilds Its Future
Our next idea is Fluor Corporation, ticker FLR. The company is a survivor in every sense of the word. It has transformed itself after a near-death experience and is poised for success and revaluation. The cartoon says, “It’s a big project, so proceed carefully, one step at a time. But considering the deadline, make them really big, careful steps.”
Fluor Corporation is an engineering, procurement, and construction, or EPC, manager. It oversees some of the world’s most complex, large-scale projects, from initial design and engineering through materials procurement to on-the-ground construction management. There’s lingering overhead and overhang from prior mismanagement, including the near bankruptcy in 2020 and several negative-margin, fixed-price legacy projects nearing completion.
The cartoon says, “When life serves you lemons, make lemonade. Then calculate your fixed and variable costs and add a reasonable markup in order to create a profit.” Even the cartoon got it right, but historically, EPC contractors competed using fixed-price models for large, multibillion-dollar projects. They basically took the risk of cost overruns.
In 2020, Fluor nearly went bankrupt after taking on several large lump-sum EPC projects where it bore most of the cost and schedule risk, and this was right before inflation took off. The company badly underestimated final costs and experienced major overruns. Those nightmare legacy projects are finally nearing completion. In response, Fluor has emphasized cost-plus work, which is now over 80% of the current backlog.
The cartoon says, “Scenic view, soon to be the site of an AI data center.” Investors remain focused on the past and underappreciate Fluor’s exposure to multiple end markets that are each positioned for potential supercycles, including data centers, pharmaceutical manufacturing, gas-power generation, LNG infrastructure, nuclear power, and copper mining. We are having a CapEx boom in this country, and Fluor is likely to get its share. The company has a market cap of just $6.1 billion and a fortress balance sheet, giving it an enterprise value of $4.1 billion.
It recently monetized a strategic investment and is using the proceeds to fund a $1.4 billion share-repurchase program, which will account for about 20% of the shares.
Construction-heavy EPC peers trade at a median of 11 times EBIT, while engineering-heavy EPC peers trade at an even higher 21 times EBIT. Fluor is involved across the board. Importantly, specialty players focused on artificial intelligence in markets get even higher premium multiples, often well above 20 times, irrespective of their mix between engineering and procurement versus construction. We believe Fluor is close to showing the Street that it, too, has significant exposure to this supercycle.
Fluor has a large and healthy pipeline today and is actively being paid to do front-end work on projects representing roughly $60 billion of future business. For context, that compares to the current backlog of $26 billion and an annual revenue base of roughly $16 billion. Management projects EBITDA going from $543 million to $900 million in 2029 as the cycle develops. Fluor has good exposure to energy, so when the last cycle took off, EBITDA tripled before peaking in 2014.
If Fluor shows new client wins and a path toward drastically increased EBITDA, the stock will do very well and perhaps even much better than we show here. We assume that the buyback gets completed and use a blended 14-times EBIT multiple to get to a $115 share price in a few years.
5. Versant Finds Its Footing
We have 2 ideas left. One is sexy and the other is not sexy. Both start with the ticker VS. We'll start with the sexy company: Versant Media Group, ticker VSNT. This company is just begging for some love.
I'd like to call out one of the long-standing sponsors of this conference, CNBC, for being a key part of this story. I think I'm giving an interview afterward, so this is my opportunity to suck up and get easy questions. Versant is super cheap, and we find that extremely sexy.
Versant is largely the legacy U.S. NBCUniversal cable TV business that was spun out of Comcast in January. About 60% of Versant's content is live news and sports, and the rest is entertainment. The main channels are CNBC, MS NOW, and the Golf Channel, and they're all top 5 in their respective genres. Versant also holds non-cable assets like GolfNow, Fandango, and Rotten Tomatoes.
Everybody seems to hate this, which created the opportunity to buy something that has been force-sold by non-economic actors, and it is very cheap. The cartoon says, “I'm sorry, Mr. Bond, but you can't just leave Comcast.” At the time of the spin-off, Versant's market cap was about 5% of Comcast's market cap, and the stock was dumped by those who received it. Index funds tracking the S&P 500 and the Nasdaq-100, which include Comcast, added to the technical selling pressure.
It took Versant a few months to find its footing. It's now trading around $41. The headline numbers for last year look great: it sports a 19% free cash flow yield. On 2026 consensus numbers, Versant is trading at 4.6 times P/E and 4.2 times EBITDA.
So, what's the problem? Well, Versant is somewhat of a melting ice cube. The market these days thinks that melting ice cubes are nearly worthless. Actually, they turn into a fair amount of fresh water. 2025 revenue declined 5%, EBITDA declined 9%, and free cash flow declined about 9%.
Versant is facing well-understood structural headwinds from cord-cutting, but because it focuses on news and live sports, it's somewhat insulated from competition from streaming platforms. Its main franchises are dominant in their respective fields and are included in cable skinny bundles. Management's goal is to pivot growth to non-pay-TV, which is currently 19% of revenues and growing at mid-single digits, while managing to slow the decline of the cable TV assets.
It is a goal within the next 3 to 5 years to double the revenue from its digital platforms to a third, and the long-term goal is to have a 50/50 revenue split. We model the next 4 years conservatively, including a slow decline of the cable business and an increase in other businesses. There's significant free cash flow for either share repurchases or to grow the business through bolt-on acquisitions away from the cable TV business. Using the simple model, Versant should generate over 60% of its market cap in free cash flow over the next 4 years.
And you're still left with a good operating business that will only have 1 turn of net leverage at $1.3 billion of EBITDA.
6. Victoria’s Secret Reclaims Its Brand
Our last investment is not sexy. The company starts with VS. You all know Victoria's Secret, ticker VSCO. The company has been beaten up, but it's coming back harder and smarter. It is the ultimate fighter.
The cartoon says, “Chief, I've got a lead on Victoria's Secret.” The brand has taken many hits, including cultural backlash, a botched acquisition of Adore Me, and tariff headwinds. Victoria's Secret is one of the most iconic brands in the world. For a few years, it had a management team that, in a DEI world, decided to broaden the brand's appeal.
They pivoted to a woke campaign of empowerment that consumers found inauthentic, and they got rid of the famous fashion show. New management came in and has begun to reverse course, including reinstating the fashion show and leaning back into the company's sexier DNA.
Victoria's Secret's revenues were very stable during the second half of the last decade. Obviously, it suffered during COVID as people could not go out and shop and had no need for fancy lingerie. 2021 showed a big spike from people returning and going out, and women realizing that their lingerie had gotten too old. The brand meandered for several years, and the new CEO took over in September 2024.
She refreshed the management team in the spring of 2025. Both the Victoria's Secret and Pink brands have begun showing share gains despite pulling back on promotions. Operating margin had been falling for a long time despite stable revenues, a classic sign of mismanagement. As revenues went up drastically in 2021, margins rebounded.
The margins remain at a lower level than we'd like, but part of that is related to the hit from tariffs in the last year. We'll likely see a bigger margin inflection in 2027, and there should even be a tariff refund coming. But the business is now stable with growing revenues. We expect good things to come.
Margins are still barely half of historical levels, and continued brand momentum can drive explosive earnings growth. We show here the 2-year price targets using 2 different scenarios. The company has stated that it can get to 10% margins, but we think that is reasonable and even conservative, and that's our base case. If it hits that, we believe the stock can trade in the low $80s, or about 74% higher than today's stock price.
Our bull case is a bit higher than management's estimates, but realistic if things go well. It requires a 1% revenue beat this year and just under 5% revenue growth over the next 2 years, with an 11% margin compared to management's guide of low double digits. The stock would more than double if that happens.
So, that's the end of my 5 transition stories. I'll leave you with 1 final cartoon that should resonate with other value investors. It says, “I don't want to change. I want all of you to change.” Thanks again to Evan, the Sohn Conference, and all the staff for making this special event. It's always a highlight for me to be here, and thank you for your attention.