We can't say for sure what
's exact analysis process is, but some of his largest adds of the
first quarter still appear undervalued. Einhorn's Greenlight
Capital hedge fund rose 8.8% this year through May 31, 2013
compared to 10% for the S&P 500, and most of his new
purchases of the first quarter have appreciated modestly. Given
what a proven stock picker Einhorn is, the holdings could still
have more room to increase.
Oil States International (
Einhorn bought 2.7 million shares of his largest new holding of
the first quarter, Oil States International, for approximately
$78 per share on average. The stock was had been relatively
stagnant for several years, as seen in the chart below:
Oilfield provides oilfield accommodations to oil and gas
companies, and recently ventured into the mining industry through
a major acquisition. Its price rose 40% this past year, boosted
by disclosure of Einhorn's stake.
Looking at the Peter Lynch chart, Einhorn purchased the company
when its price line fell significantly below its price at P/E 15
line, indicating it was undervalued. The company still appears
undervalued according as of Friday according to this method:
Einhorn bought Oilfields at a P/E roughly between 9 and 10, which
is significantly below the industry median of 16.2. Friday the
P/E ratio stands at 12.2, higher than 60% of the 177 companies in
the global oil and gas equipment and services industry, but still
well below the industry median.
The reverse DCF calculator also shows that the market is
expecting a growth rate of 7.38% for the next 10 years for the
company at its current price. In the past, the company achieved a
17.2% EBITDA per share average annual growth rate for 10 years,
making this number seem reasonable:
OIS data byGuruFocus.com
Though the last month saw the company's stock rise to its highest
price in 10 years, Einhorn still believes it has room to go. In
his first quarter letter he commented on the company and set a
We believe that the company trades at a significant discount
to the sum of its parts. Though the shares trade at slightly less
than 7x 2013 EBITDA (a multiple typically associated with its
lower multiple businesses), the majority of its profits come from
Accommodations, which is a high-growth, high return-on-capital
segment that deserves a much higher valuation. At 8.6x 2013
EBITDA, an appropriate multiple given a sum of the parts analysis
of OIS's business mix and where comparable companies trade, OIS
would be worth close to $120 per share. We believe that OIS could
unlock significant shareholder value by converting the
Accommodations unit into a REIT and separating it from the rest
of the company; if completed, it would suggest a valuation of
$155 per share.
Hess Corp. (
Einhorn selected another from the oil and gas industry in the
first quarter, purchasing 1.245 million shares of Hess Corp. for
approximately $65 per share on average. With a 1.4% portfolio
weight, this was his second largest new buy. The price has since
appreciated a modest 5%.
Hess is a global independent oil, natural gas and electricity
company. A Peter Lynch chart of the company shows that it is
undervalued, but has become even more undervalued since Einhorn
In addition, Hess is currently trading near its one-year low P/E
ratio of 8.25 - even lower than when Einhorn bought it.
The current price of $69.08 per share also implies that the
market expects an earnings per share growth rate of 1.39% for the
next 10 years. In the past 10 years, Hess grew its EBITDA per
share at a substantially higher rate of 7.4%.
GuruFocus indicates that assuming the same growth rate and
discount rate, Hess has the second lowest margin of safety, at
30%, than its four closets peers.
Spirit AeroSystems Holdings Inc. (
Einhorn may have placed less of his firm's funds in companies he
found less undervalued. He gave almost half a percent portfolio
weight to Spirit AeroSystems Holdings Inc. (
) in the first quarter. In total he purchased 1,652,962 shares
for $17 on average. The stock has already gained 26%.
Spirit AeroSystems appears overvalued according to the Peter
The P/E ratio is also high, at 80.2:
Finally, the market expects a 34.26% growth rate in earnings for
the next 10 years to justify the current price of $21.80. This
company has produced only a 13.9% decline rate on average for the
past five years.
However, the company's financials also in many areas compare
unfavorably to its peers in the aerospace industry, and its board
of directors in March hired a new CEO with a strong financial
background. The new chief, Larry A Lawson, is a former executive
vice president of Lockheed Martin Aeronautics business segment.
"The board sought a CEO armed with a strong record of operating
and financial performance on both mature and new aircraft
programs with the ability to take Spirit to the next level," Bob
Johnson, board chairman ofSpirit AeroSystems, said in a release.
"Larry met all of the board's criteria. He is a well-known and
highly respected leader in the industry and has outstanding
experience managing multiple premier aircraft platforms
efficiently and profitably across a large-scale business."
Spirit has a return on equity of 1.7%, lower than 80% of the
companies in the global aerospace and defense industry. Its
return on assets of 0.6 also ranks lower than 81% of its industry
peers. While earnings and EBITDA per share have been in decline,
the company's revenue has seen healthy revenue growth at a rate
of 6.7%, higher than 71% of its industry peers.
Einhorn also added new positions in IAC/InterActiveCorp (
), which has gained 13% from his average purchase price, and
Capital Bank Financial Corp. (
) and National Bank Holdings Corp. (
), which fell 1% and 2%, respectively.
See more of David Einhorn's buys and sells in his portfolio here.
Also check out the Undervalued Stocks, Top Growth Companies, and
High Yield stocks of David Einhorn.About GuruFocus: GuruFocus.com
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