YB new stock pitches (Mon, Nov 17)

First Financial Bancorp (FFBC) is an $18 billion asset commercial bank trading at 2016 stock prices despite earning twice the per-share earnings, with its P/E multiple declining from 18x to 8x, representing a cheap absolute valuation. The bank generates a solid 1.40% ROA and over 20% ROTCE, trading at a discount to comparable high-performing Midwestern commercial bank peers despite having several fee-related businesses that contribute to high returns, a solid credit culture with 10-33 basis points net charge-offs over the last decade, and smart expansion through two small acquisitions into Cleveland and Chicago markets. CEO Archie Brown previously sold his bank MainSource Financial to FFBC, making him more likely to sell again, while the reinvestment of BankFinancial's low-yielding loans and securities could add 20 cents per share to 2026 earnings, though management did not include this upside in their acquisition forecast. The investment benefits from general regional bank tailwinds including steeper yield curves, loan repricing, reduced regulatory burden, and increased M&A activity, but faces risks including industry-wide credit concerns from economic slowdown, typical commercial banking risks such as increased competition from within and outside the industry plus asymmetrical lending risk/reward, and acquisition integration risks from the two announced deals and potential future acquisitions where management may overpay and destroy shareholder value.

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Vera Bradley (VRA), with a $65 million market cap, presents a 2x upside opportunity following the departure of CEO Jackie Ardrey, whose failed rebrand alienated loyal customers, and the appointment of interim CEO Ian Bickley, a former Coach executive who has successfully reversed course by listening to TikTok feedback and bringing back the heritage 100 handbag in new colors, resulting in 3 out of 6 styles selling out. The company has achieved revenue growth in October year-over-year despite operating 8 fewer full-price stores, driven by successful product launches including the trending Star Patchwork line and a successful Anthropologie collaboration where the Lattice Patchwork Mistletoe duffel bag and Hathaway tote sold out multiple times. The company is executing a real estate sale-leaseback of its Roanoke, IN industrial property valued at $29.5 million (nearly half the market cap), has no debt, is liquidating approximately $100 million in old inventory through discount retailers like Costco, Marshalls, and TJX to generate working capital for new products, and is experiencing positive year-over-year website traffic growth. - link

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Becton, Dickinson and Company (BDX) is a diversified medical technology company with $21+ billion in annual revenue, monopoly-like market shares, impressive margins (54.7% gross, 25% operating) and 40%+ return on tangible invested capital, though growth is constrained by mature markets with ~5% addressable market growth. BDX announced a Reverse Morris Trust transaction to spin off its $3.3 billion Biosciences & Diagnostics Solutions businesses to Waters Corporation for ~$18.8 billion total consideration (~$65/BDX share), expected to close by Q1 2026, while BDX will receive $4 billion in cash for share repurchases. The divestiture removes growth headwinds from these struggling businesses (which posted -4.0% and -0.7% organic growth in fiscal 2025, dragging overall growth from 3.9% to 2.9%) and should unlock significant value, as BDX currently trades at 3.4x EV/revenue and 13.0x P/E versus the divested businesses fetching 5.7x revenue and 25x+ estimated after-tax operating profit. On a pro forma basis, the 'New BD' trades at less than 10x fiscal 2026 EPS compared to fair value of ~$300/share, with catalysts including the transaction completion, aggressive share buybacks (at least $2 billion from transaction proceeds plus $1-2 billion from free cash flow), a planned 2026 analyst day, and the dissipation of transitory growth headwinds affecting the remaining recession-resilient medical supplies business.

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