YB new stock pitches (Fri, Aug 1)

Fortrea Holdings (FTRE), a contract research organization that helps biotech and pharmaceutical companies run clinical trials, is trading at a discounted price of $5.85 per share (4.5% of the fund) following its June 2023 spinoff from LabCorp. The company faces headwinds including a biotech funding slump, expensive stand-up costs to separate from LabCorp, debt typical of spinoffs, and the recent departure of its CEO in mid-May. Despite these challenges, Fortrea shows promising signs: growing backlog of new clinical trials, near-completion of its separation from LabCorp (which will reduce expenses), and a business model with attractive fundamentals. The company operates in a capital-light industry with significant barriers to entry (specialized expertise and doctor relationships) that allow for high returns on capital. Pharmaceutical companies are reluctant to switch to unproven CROs due to the high cost of delays in drug approvals, creating a moat for established players like Fortrea. Long-term industry tailwinds include continued drug research driven by patent protection and increasing demand from an aging global population, positioning Fortrea to return to growth and profitability once its current challenges are overcome.

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Avio S.p.A. (AVIO.MI), Europe's sole operational space launcher and critical missile supplier, trades at an enterprise value of ~$700 million, representing just 1.3x 2026 revenue and 16x EBITDA. As Europe's primary contractor for Vega launchers and supplier for Ariane 6 boosters, Avio is positioned to benefit from Europe's renewed focus on space sovereignty following years of launch failures, delays, and dependence on Russian Soyuz rockets and SpaceX. Europe aims to increase launches from 3 to 16 annually by decade-end, potentially tripling Avio's revenue to ~$1.3B by 2030, with EBITDA reaching ~$200M at 20% incremental margins. On the defense front, Avio manufactures motors for MBDA's CAMM-ER and Aster-30 missiles, with current production potentially quadrupling in 4-5 years based on European demand alone. The company is also expanding into the U.S. missile supply chain, establishing U.S.-based production to serve Raytheon and the U.S. Army. Compared to peers like Rocket Lab (RKLB), which trades at 30x larger market cap with similar revenue, and Firefly Aerospace, seeking a $5.5B IPO valuation with only two successful launches, Avio appears significantly undervalued with potential for 10x upside at a 30x EBITDA multiple.

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FTAI Infrastructure Inc. (FIP) is an overleveraged collection of infrastructure assets including a short-line railroad, two energy terminals, and a gas plant, which are bleeding cash and facing an imminent liquidity crisis now that preferred dividends can no longer be paid-in-kind (PIK'd). The company trades at 18x run-rate EBITDA, suggesting 60-70% downside on a sum-of-the-parts basis. Management has consistently touted near-term growth catalysts to distract from fundamental problems, but has missed all 94 growth projections since 2016, often by wide margins. Investigation through interviews with former executives and industry experts reveals these growth drivers are likely exaggerated or fictional. At the core of FIP's chronic underperformance are governance conflicts with its external manager, Fortress, which has led the company to sink tens of millions into distressed or strategically dubious investments that appear to benefit Fortress and its affiliates rather than FIP shareholders. With no credible path to meeting cash obligations and a consistent pattern of missed targets, an equity raise appears inevitable.

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