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Investment Strategy
What is the goal of the Tortoise Portfolio? The Tortoise Portfolio aims to outperform the S&P 500 index over time. Companies in this portfolio tend to be mature, relatively slow-growing, and with moderate to low risk. New purchases must have an economic moat, preferably wide. We attempt to tilt the portfolio toward companies with at least stable competitive advantages (stable moat trends).

What is the goal of the Hare Portfolio? The Hare Portfolio aims to outperform the S&P 500 index over time. Companies in this portfolio tend to be faster-growing, with both higher risk and higher return potential than those in the Tortoise. New purchases must have an economic moat, preferably wide. We attempt to tilt the portfolio toward companies with growing competitive advantages (positive moat trends).

Investment Strategy
Morningstar StockInvestor invests in companies with established competitive advantages and generous free cash flows, trading at discounts to their intrinsic values. These are core holdings, with more conservative ideas appearing in the Tortoise Portfolio and more aggressive ideas in the Hare Portfolio. We expect both portfolios to beat broad U.S. stock index benchmarks, such as the S&P 500, over rolling three-year periods.
About the Editor
As editor of Morningstar's StockInvestor newsletter, Matthew Coffina manages the publication's two real-money, market-beating model portfolios — the Tortoise and the Hare. Matt was previously a senior healthcare analyst, covering managed care and pharmaceutical services companies. Matt also developed the discounted cash flow model used by Morningstar analysts to assign fair value estimates to most of the companies in its global coverage universe.

Matt joined Morningstar in 2007. He holds a bachelor's degree in economics from Oberlin College and also holds the Chartered Financial Analyst (CFA) designation.

May 01, 2016
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Matthew Coffina, CFA
Morningstar StockInvestor
As editor of Morningstar's StockInvestor newsletter, Matthew Coffina manages the publication's two real-money, market-beating model portfolios -- the Tortoise and the Hare. Matt was previously a senior healthcare analyst, covering managed care and
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Roundup, 4/28/16 -- My Rationale for Today's Trades

This morning, I sold the Hare's stakes in W.W. Grainger GWW and PotashCorp POT and initiated a new position in AmerisourceBergen ABC.

Our investment in W.W. Grainger didn't unfold as I had hoped. Financial results began to deteriorate almost immediately after I bought the shares in April 2015--the result of macroeconomic pressures including the strong U.S. dollar, falling commodity prices, sluggish industrial activity, and a deflationary environment for industrial goods. Grainger's management responded with cost cutting, debt-funded share repurchases, and the acquisition of Cromwell (an industrial distributor in the U.K.), which helped to preserve earnings per share when they otherwise might have declined materially.

Nevertheless, I had purchased Grainger expecting it to grow EPS in the near term, so it turns out the price we paid wasn't nearly as attractive as I thought at the time. I've also become increasingly worried about the long-term threat to industrial distributors' pricing power from the shift to online sales. While Grainger is the leader in industrial e-commerce, the ease of comparing prices online may make it difficult to sustain its robust historical operating margins. Industrial distributors are far more profitable than most other kinds of distributors, and I believe this is at least partly due to a lack of price transparency on relatively inexpensive, infrequently purchased items. We can blame the business cycle for the recent weakness in Grainger's pricing and operating margins, but what if cyclical factors are masking a more serious intensification of underlying competitive pressure?

Grainger's disappointing recent financial performance hurt the stock price for a while--at one point, we had an unrealized loss of nearly 25% on the Hare's Grainger position. Fortunately, the stock has recovered in 2016 thanks to the broader rebound in industrial and commodity sectors. Investors are optimistic that the U.S. will avoid a recession in the short term and that we're already past the bottom for commodity prices. That may or may not be true, but with Grainger now trading for a 4% premium to our $230 fair value estimate and for 20 times 2016 consensus earnings estimates, I no longer see a favorable risk/reward tradeoff.

Transaction: Sold W.W. Grainger GWW

Sale Price: $239.24
Fair Value Estimate: $230
Price/Fair Value Estimate: 1.04
Fair Value Uncertainty: Medium
Morningstar Rating: 3 Stars
Economic Moat: Wide
Moat Trend: Stable
Stewardship: Standard

Shares Sold: 85
Old Weight in Hare: 4.9%
Realized Capital Gain: 2.0%
Realized Total Return: 4.0%


A comparison between Grainger and AmerisourceBergen helps to illustrate why I find the latter significantly more attractive. Both of these companies are distributors--AmerisourceBergen delivers pharmaceuticals to retail pharmacies, mail-order pharmacies, hospitals, physicians, and other healthcare providers. However, the regulated nature of pharmaceutical distribution creates much higher barriers to entry than is the case with industrial distribution. The top three distributors--McKesson MCK, Amerisource, and Cardinal Health CAH--control well over 90% of the U.S. market. More importantly, despite a razor-thin operating margin around 1.4%, AmerisourceBergen earns excellent returns on capital because of its massive scale. With revenue approaching $150 billion per year, AmerisourceBergen is able to leverage its fixed investments in warehouses, information technology systems, inventory, supplier relationships, and so on. A startup distributor couldn't hope to achieve a competitive cost structure.

Relative to W.W. Grainger, I expect AmerisourceBergen to deliver faster growth with less risk and a cheaper valuation. Grainger's growth potential comes primarily from market share gains--overall demand for industrial maintenance, repair and operating supplies is likely to grow in the low-single-digits at best. In contrast, overall pharmaceutical spending is projected to grow more than 7% per year over the next five years, and AmerisourceBergen should grow faster than the industry thanks to its strong position in specialty drugs and better-than-average customer mix. Margins are a question mark for both companies. While Grainger faces more intense competition for every order, AmerisourceBergen must deal with some very large customers that are constantly demanding pricing concessions. On the other hand, AmerisourceBergen's margins are already so slim that customers recognize there isn't much room to squeeze them further. As I mentioned, Grainger's margins are high by distributor standards. Top-line growth should make it easier for AmerisourceBergen to continue leveraging its operating costs, something it has done successfully for years.

AmerisourceBergen is also far more economically defensive than Grainger, since patients tend to keep taking their drugs regardless of economic conditions. The 2009 recession barely registered for Amerisource, while Grainger's operating income fell 15% that year. Given superior growth and less risk, you would expect AmerisourceBergen to fetch a richer valuation than Grainger, but in fact the opposite is true. At my purchase price today, AmerisourceBergen was trading for 15 times consensus earnings estimates for the current fiscal year (which ends in September), a full 25% below Grainger's 20-times multiple. AmerisourceBergen was also trading at a 14% discount to our $101 fair value estimate.

To be fair, AmerisourceBergen does have one major drawback relative to Grainger: It has a much greater degree of customer and supplier concentration. Walgreens Boots Alliance WBA is AmerisourceBergen's largest customer, accounting for a whopping 30% of revenue. The good news is that Walgreens is under a tightly integrated, 10-year strategic partnership that runs through 2023. Walgreens also has a sizable and growing equity interest in AmerisourceBergen. Walgreens' empire-building management team has made no secret of its desire for vertical integration, so I think there's a decent chance that Walgreens will end up buying all of AmerisourceBergen before the current contract is up.

AmerisourceBergen's second-largest customer is fellow Hare holding Express Scripts ESRX, accounting for 16% of revenue. The original Express Scripts contract already expired, and the two companies are operating under a one-year renewal option that ends this year. I'm hopeful that AmerisourceBergen will renew Express Scripts to a longer-term deal, perhaps with closer integration of generic sourcing in partnership with Walgreens. On its first-quarter conference call, Express Scripts' management made a point of calling out how satisfied they have been with the value AmerisourceBergen provides. However, even if this customer were lost, I believe Express Scripts' earnings contribution is far below its revenue contribution--perhaps 5% or less of AmerisourceBergen's earnings.

After Walgreens and Express Scripts, AmerisourceBergen's next eight largest customers account for approximately 18% of revenue combined. The next-most prominent contract expiration in the near term is Kaiser Permanente--an announcement is due any day. On the supplier side, AmerisourceBergen's top 10 suppliers account for 46% of its purchases, but I don't have any serious concerns about supplier losses, since drugmakers prioritize making sure patients have access to their products.

Aside from the risk of client losses, I believe the main reason drug distributors' stocks have been down this year is investor concerns over pricing trends for generic drugs. Distributors typically benefit from higher drug prices, both through fees that are set as a percentage of price and by holding inventory while it appreciates. Generic drug prices have been rising in the past few years, which is contrary to the more common pattern of falling generic drug prices. Recent commentary indicates that generic drug prices are returning to their normal deflationary behavior, which would be a headwind (or at least not a tailwind) to distributor margins. Even so, I think AmerisourceBergen should be capable of double-digit annual earnings per share growth driven primarily by growth in overall pharmaceutical spending, leverage over operating costs, and share repurchases.

Lastly, a word on why I opted for AmerisourceBergen over McKesson, which I had previously considered a top prospect. McKesson does trade at a steeper discount to our fair value estimate (about 23%) and for a lower multiple of earnings (around 13 times). However, I perceive McKesson's client attrition risk to be greater than AmerisourceBergen's, as several of its most important clients have been acquired or have pending acquisition offers from companies that use different distributors. I also prefer AmerisourceBergen's business mix: Amerisource has a greater focus on U.S. pharmaceutical distribution, with an especially large specialty (mostly oncology) business. McKesson has less attractive operations in medical-surgical supplies, international distribution, and a struggling healthcare IT segment. Lastly, I'm less comfortable with McKesson's corporate stewardship, which has been marked by occasionally egregious executive compensation practices, some questionable capital allocation decisions, and less impressive strategic execution compared to Amerisource. Overall, I think it's worth paying a modest premium for a higher-quality business at AmerisourceBergen.

Transaction: Bought AmerisourceBergen ABC

Purchase Price: $86.75
Fair Value Estimate: $101
Price/Fair Value Estimate: 0.86
Fair Value Uncertainty: Medium
Morningstar Rating: 4 Stars
Economic Moat: Wide
Moat Trend: Stable
Stewardship: Standard

Shares Bought: 200
New Weight in Hare: 4.2%


As for PotashCorp, this sale is frankly long overdue. The company has been hurt by the broader commodity and agricultural sector downturn, but its fundamental problems really began in mid-2013 with the collapse of the cartel-like marketing partnership between Russian potash miner Uralkali and Belarusian miner Belaruskali. I was slow to accept that our investment thesis was broken--a cardinal sin in investing--and it has cost us dearly.

Our original investment thesis was that the concentrated nature of the potash industry--with most of the world's supply in the hands of just a few miners in Canada, Russia, and Belarus--would lead to production discipline and rational pricing. Even when the Uralkali and Belaruskali partnership broke down, I was hopeful that the companies' mutual self-interest would lead them to a reconciliation. Unfortunately, geopolitical factors and the temptations of excess capacity trumped economic rationality, and production discipline has disappeared. Almost three years later, Uralkali and Belaruskali remain farther apart than ever.

At the same time, demand for fertilizer is extremely weak due to poor farming conditions and macroeconomic challenges, especially in emerging markets. Potash supply is moving in the opposite direction as capacity that was planned years ago during the boom times is only now coming online. PotashCorp and its Canadian peers are trying to curtail their own production to match supply with demand, but the effort appears futile without support from other global miners. In conjunction with its earnings release this morning, PotashCorp once again cut its full-year earnings per share outlook. The new range of $0.60-$0.80 is well below the recently reduced dividend rate of $1 per share.

More to the point, without the global cartel, potash isn't that different from any other commodity. As I've said on countless occasions, I don't think we can predict commodity prices with any confidence. And since this is a prerequisite for estimating the long-run earnings power of commodity producers like PotashCorp, I believe these stocks fall outside my circle of competence. Our investing edge comes from understanding economic moats and intrinsic value better than most other investors, but any advantage we might have in that regard is overwhelmed by the uncertainty surrounding commodity prices.

It's worth noting that, as of this writing, PotashCorp is still trading at a fairly steep discount to our $24 fair value estimate (which hasn't been updated yet for the first-quarter earnings report). However, there is a very high degree of uncertainty surrounding that fair value estimate, and in any case valuation is a secondary consideration under our strategy if the economic moat is in doubt. For investors in taxable accounts, I also think it's worthwhile to harvest our large capital loss.

Transaction: Sold PotashCorp POT

Sale Price: $18.01
Fair Value Estimate: $24
Price/Fair Value Estimate: 0.75
Fair Value Uncertainty: Very High
Morningstar Rating: 4 Stars
Economic Moat: Narrow
Moat Trend: Stable
Stewardship: Exemplary

Shares Sold: 320
Old Weight in Hare: 1.4%
Realized Capital Loss: -56.3%
Realized Total Return: -46.2%


As for the week's news thus far, the following items are covered in the analyst notes below:

Earnings Reports:

1. EBay EBAY
2. Compass Minerals CMP
3. General Dynamics GD
4. Express Scripts ESRX

Other News:

5. Anthem's ANTM tone on its first-quarter conference call seemed to soften a bit with respect to its relationship with Express Scripts. I don't think Anthem's claim that it is being overcharged by $3 billion per year has merit, so the company may be preparing investors for disappointment if it loses its lawsuit, or the lawsuit simply drags out past the expected end of the contract in 2019. In any case, it seems clear that Anthem won't be dropping Express Scripts any time soon--even if it wanted to, it lacks the operational capability to move its pharmacy benefit management business within the next couple of years.

6. Priceline PCLN CEO Darren Huston was forced to resign (without severance) after an investigation by the Board of Directors revealed that he had engaged in an inappropriate personal relationship with a company employee. This is disappointing, since we had viewed Huston as an excellent CEO, though we believe Priceline has a deep management bench and strong corporate culture. Board Chairman Jeffery Boyd--who served as CEO from 2002 to 2013--will fill in as Interim CEO while the company searches for Huston's replacement. I don't expect this fast-growing, highly profitable company to have much trouble finding a capable CEO, and I doubt this unfortunate turn of events will have a meaningful impact on Priceline's long-term intrinsic value.

I'll include any notes from the remainder of the week in next week's roundup.


Matt Coffina, CFA
Editor, Morningstar StockInvestor

Disclosure: I own all of the stocks in the Tortoise and Hare in my personal portfolio.


Morningstar Stock Analyst Notes

1. StubHub and Classifieds Remain Bright Spots, but Concerns About EBay's Core Marketplace Persist
- by R.J. Hottovy, CFA

EBay started 2016 much as it finished 2015, with solid execution against structured data plans and solid StubHub and classifieds segment revenue growth overshadowed by tepid active user and gross merchandise volume growth trends and concerns about longer-term customer acquisition costs. EBay's structured data listing requirement--now required for 60% of all manufactured goods sold on its global marketplace--is clearly a positive from a conversion, search, and pricing perspective. However, we still struggle to come up with scenarios that will consistently return the marketplaces segment to 5%-plus top-line growth beyond 2016 (as outlined as part of its post-PayPal financial objectives), particularly as Amazon moves to greater flexibility for Prime memberships through monthly memberships and continues to make platform changes to facilitate individual/small business sellers.

With year-over-year constant-currency revenue up 34% and 17%, StubHub and classifieds remain bright spots and reinforce our views about eBay's network effect in C2C e-commerce, the basis for our narrow moat rating. However, a 2% decline in core marketplace GMV (ex StubHub) falls well short of global digital commerce growth trends in the low teens and indicates market share losses, while a lower take rate (8.20% versus 8.28%) raises questions about competitive headwinds. Taken together, we believe these trends validate our negative moat trend rating.

The modestly better-than-expected first-quarter results put eBay on pace to achieve its updated 2016 guidance (revenue target raised to $8.6 billion-$8.8 billion, but outlook intact for adjusted operating margins of 31%-33% and adjusted EPS of $1.82-$1.87). While these estimates look valid for 2016, we harbor concerns about margin degradation as eBay attempts to accelerate active buyer/GMV growth, with our $25 fair value estimate baking in longer-term adjusted operating margins in the low 30s versus recent peaks around 34%.

2. Compass Drives Salt Improvement Despite Mild Winter
- by Jeffrey Stafford, CFA

Compass Minerals performed reasonably well in the first quarter despite underlying weakness in both of its primary end markets, highway deicing salt and specialty fertilizer. Operating earnings dropped 12% year over year, as a 7% earnings improvement in the salt business was not nearly enough to offset lower fertilizer prices and volume. We're leaving our fair value estimate of $89 per share and wide moat rating intact.

Salt sales volume dropped about 3.5% year over year as mild winter weather in the first quarter held back deicing purchases. The 11 cities representing Compass' primary markets reported 84 snow events during the first quarter compared with a 10-year average of 114 and a 2015 result of 126. We expect the mild winter has led to a buildup in customer inventories that will weigh on salt volume and prices during the upcoming bid season. In the long run, however, assuming a return to more normal winter weather, we think salt volume and pricing will regain some strength. We forecast total salt volume of 11.4 million tons in 2016 but expect Compass to sell more than 13 million tons per year in the long run.

Despite unfavorable weather, Compass was able to increase salt earnings year over year, a testament to its cost focus and share gains from the prior bid season. We estimate costs per ton dropped more than 10%, and we expect further cost benefits as the company completes projects at its massive and low-cost Goderich mine in Ontario. Impressively, Compass' first-quarter EBITDA was $93 million this year with only 84 snow events; compare that with 2014's first-quarter EBITDA of $75 million when the company benefited from 151 snow events.

Specialty fertilizer remains a challenging business for Compass, a trend we expect will continue. Operating earnings for the segment dropped a whopping 75% year over year. As we expected, the spread between muriate of potash and sulfate of potash continues to contract. Our long-run pricing for this segment is intact.

3. General Dynamics' Strong First-Quarter Margins Should Spur Stronger 2016 Outlook
- by Chris Higgins

Wide-moat General Dynamics reported first-quarter 2016 results. GD beat market consensus for earnings per share handily by 18 cents. We raised our fair value estimate on the stock to $145 from $141 due to slightly better 2016 operating margin assumptions in our model.

Revenue fell 0.8% to $7.7 billion. All operating segments registered revenue declines, but Marine Systems grew nearly 10.0% in the quarter. Aerospace revenue fell nearly 6.0% due to lower Gulfstream deliveries, while Combat Systems dropped 6.6% because of headwinds created by the stronger U.S. dollar. Controlling for the U.S. dollar would have resulted in a decrease of 2.3% in Combat Systems. We are not too excited by the decrease in Combat Systems given the unit’s funded backlog of 3.2 times last year’s sales and solid first-quarter book-to-bill ratio of 1. Management attributed the fall in Aerospace revenue to phasing of deliveries, and we expect the business to fall a few aircraft short of its full-year delivery guidance of 104 jets. While we are definitely not in panic mode, the continued business jet market weakness combined with Aerospace’s soft top line makes us a bit concerned.

Despite the revenue decrease, GD managed to expand operating margins by 40 basis points to 13.6% thanks to cost controls--cost of goods sold and overhead expenses fell--that are a hallmark of this management team. Moreover, this operating margin expansion occurred in each operating segment except for Marine Systems. The Marine Systems business suffered from poor contract mix due to the end of some defense contracts that were replaced by lower margin commercial contracts. We were particularly impressed with the operating margins within Information Services & Technology. This business faces stiff competition and pricing pressures in many of its markets, but it managed to expand margins by 140 basis points this quarter, registering a 10.6% operating margin.

Net income from continuing operations rose to $730 million from $716 million last year and GD bought back 7.8 million shares, resulting in an EPS of $2.34 versus $2.14 during the first quarter of 2015. Operating cash flow fell to $439 million in the quarter from $745 million last year due primarily to growth in accounts receivable.

GD typically does not update full-year 2016 guidance until the middle of the year, but the CEO all but telegraphed an upgrade to the company’s guidance stating that, “We are ahead of the operating plan on which our guidance was based.” Next quarter we expect an increase in the company’s guidance for full-year 2016 profitability but perhaps not for revenue, noting that management now expects Aerospace to register a slight decline in full-year 2016 revenue versus 2015.

4. Express Scripts Reports In-Line 1Q
- by Vishnu Lekraj

We are reiterating our $100 fair value estimate for Express Scripts after the pharmacy benefit manager reported in-line first-quarter results. The only material change was an accounting adjustment related to the amortization of the Anthem contract, as Express will now recognize all of these costs over the 10-year duration of the contract versus the original 15-year period. We do not believe this means a partnership separation is imminent, but given the recent legal actions taken by both firms, the accounting adjustment was warranted. Apart from the Anthem issues, quarterly results were highly positive as Express raised the midpoint of its expected 2016 client retention rate by 50 basis points to 96.5%. Additionally, the company has taken advantage of its undervalued stock to buy back a significant portion of its float. This has led to a reduction in the 2016 expected share count and an $0.18 increase in the midpoint of adjusted earnings per share guidance to $6.37. The aggressive repurchasing of shares at this undervalued level is a highly positive strategy, from our perspective, and shareholders will benefit long term as a result.

As we have stated previously, we believe an amenable contract renewal is the correct course of action for both Express and Anthem. Barring the escalation of any personal issues between the respective management teams, we believe it is likely that a continuation of the partnership will eventually be consummated. Anthem's alternative PBM vendor choices are extremely limited, and we do not believe the firm has the monetary and human capital to bring its entire PBM operations in house. Additionally, regulatory considerations may prevent the managed-care organization from being able to insource all of its PBM activities.

For the quarter, Express reported operating metrics that largely met our outlook. Positively, the firm reported an expected 96.5% retention rate for 2016, which firmly places it in a normalized range, and stated the selling season was one of its best. While revenue for the quarter remained relatively flat, total adjusted claims were up 5.17%, gross margins increased 8 basis points to 7.45%, and operating margins increased 48 basis points to 3.79%. Driving a significant portion of the profit improvement was a 10% decrease in centralized expenses. We believe this dynamic reflects realized synergies from previous acquisitions and the inherent leverage in the firm's operations. Express' results were also solid on a per-claim basis. Even though gross profit per claim decreased 4% to $5.71, operating dollars per claim increased 8.22% to $2.91. It is important to highlight that the complex nature of drug pricing can cause quarterly revenue and profit to vary for Express. We believe gross profit dollars per claim will increase through the back half of the year as new contracts ramp up and the firm continues to scale its cost basis.

The firm's stock remains significantly undervalued when compared with our $100 fair value estimate and represents one of our Best Ideas. We believe there is more than an adequate margin of safety built into Express' current share price even when factoring in a worst-case Anthem contract scenario.

5. Material Development Regarding Express Contract on Anthem Quarterly Call
- by Vishnu Lekraj

The major development from Anthem’s first-quarter earnings conference call related to the future of its Express Scripts partnership. Over the course of 2016, the hostility over a renegotiation of contract terms has steadily escalated with the firms ultimately suing each other. Anthem’s management has claimed it is owed at least $3 billion more in annual savings from its relationship with Express, a figure that has been difficult to verify. Due to Anthem's aggressive behavior, there has been an assumption among some market participants that the MCO would cancel its PBM contract early and either insource all PBM activities or seek a new vendor relationship. At the very least some market participants had believed Anthem would not renew once the contract expired at the end of 2019 and pursue alternatives.

When asked for details related to its future PBM activities on the earnings call, management was less firm in its answers than it has been previously. When pressed to give details regarding how a possible in-house PBM would be constructed and the savings that would be gained in the context of the $3 billion claim, Joe Swedish stated that they had not done a complete analysis. He also stated that the firm would not have to make a definitive decision for another handful of years and it will continue to negotiate with Express on a renewal. Swedish also admitted it would be a complex and expensive endeavor to transition Anthem’s PBM activates away from Express.

We believe this points to the high switching costs Anthem faces as its PBM vendor choices are limited and the insourcing of its entire PBM operations may be cost prohibitive and too complex. Thus, as we have previously stated, an immediate or protracted partner separation with Express is not as likely as many market participants may believe. From our perspective, the increased hostility of the negotiations is a reflection of issues beyond the current business dynamics of the partnership. Even though this is the case, we believe an agreement will eventually be consummated between the two entities.

6. Priceline Loses Valuable Team Member but Has Strong Bench
- by Dan Wasiolek

Priceline and CEO Darren Huston resigned after an independent board investigation concluded that a relationship he had with an employee was contrary to the code of conduct the company expects of its executives. We had viewed Huston as a strong CEO and good steward of capital, which was key to our Exemplary stewardship rating for the narrow-moat company; therefore, the news of his departure is a negative. That said, we don't expect Priceline's execution and growth to miss a beat with Jeffery Boyd stepping in as interim CEO and president. As a result, we plan to maintain our Exemplary stewardship rating and would view a pullback in the shares as an opportunity to invest in a high-quality company trading at a discount to our $1,810 fair value estimate.

Boyd was CEO of Priceline from 2002 to 2013 and in 2005 paid $135 million for, which today is valued at around $60 billion (based on representing 90% of the total company's market capitalization). Boyd was paramount in making Priceline the dominant online travel agency that it is today, and as chairman he has continued to be engaged in everyday operations since leaving the CEO post. Investors should have little doubt that the company is in extremely capable hands with Boyd.

We expect Boyd to remain chairman once a permanent CEO is named, although filling Huston's shoes won't be easy. We believe Gillian Tans is an option to take the CEO role. Tans has been with Priceline since 2002; she has been president of since January 2015 and was COO of the division before that. She now will take on the CEO position at


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