Oaktree Capital Management disclosed last week it trimmed its stake in Berry Corp. (BRY, Financial) by 4.95%.
The alternative asset management firm headquartered in Los Angeles, which was founded by renowned guru Howard Marks (Trades, Portfolio) and several fellow investors in 1995, focuses on delivering superior results while observing its six-tenet investment philosophy of risk control, consistency, market inefficiency, specialization, bottom-up analysis and disavowal of market timing. Specializing in credit strategies, the firm also invests in high-yield bonds, convertible securities, distressed debt, real estate, control investments and listed equities.
According to GuruFocus Real-Time Picks, a Premium feature based on 13D, 13G and Form 4 filings, the firm sold 605,043 shares of the Dallas-based upstream energy company on June 2. A couple days before, on May 31, it revealed it disposed of 686,270 shares, curbing the position by 5.31%. The trades had a combined impact of -0.17% on the equity portfolio. The stock traded for an average price of $11.32 per share on the day of the second transaction.
Oaktree now holds 11.6 million shares total, which occupy 1.54% of the equity portfolio. GuruFocus data shows it has lost an estimated 1.25% on the investment since the first quarter of 2019.
The oil and gas producer, which primarily operates in the San Joaquin Basin of California, has an $899.67 million market cap; its shares were trading around $11.13 on Tuesday with a price-book ratio of 1.42 and a price-sales ratio of 1.12.
The GF Value Line suggests the stock is fairly valued currently based on historical ratios, past financial performance and future earnings projections.
The GF Score of 60 out of 100, however, indicates the company has poor future performance potential, having received middling ranks for momentum, GF Value and financial strength and a low mark for profitability. Since it did not receive a grade for growth, though, its full potential may not be reflected.
Berry reported its first-quarter 2022 results on May 4, posting an earnings loss of 71 cents per share on $255.94 million in revenue. While sales were up from the prior-year quarter, the net income loss widened.
Board Chair and CEO Trem Smith lauded the results, noting the “performance positions us for a very good year for our shareholders.”
“We are excited to report that we are on track to deliver top tier returns just as we promised when we announced our new Shareholder Return Model which went into effect for the first quarter of 2022,” he said. “Based on the current commodity strip prices and current plan, we expect to deliver cash returns that would represent a cash yield in the mid-to-high teens for 2022.”
A week later on May 12, the company announced it had repurchased 2 million shares of its common stock for $22.8 million. The purchases accounted for 2.5% of Berry’s outstanding shares, leaving more than $127 million available on its repurchase authorization, which the board had recently increased to $150 million.
In a statement, Chief Financial Officer and Executive Vice President Cary Baetz said, “Based on the current oil strip price, the purchase price for these shares was an attractive return for the Berry shareholders. Additionally, the effective price we paid for these shares should be reduced by the amount of cash we’ll save on future dividends on these shares.”
GuruFocus rated Berry’s financial strength 5 out of 10. Despite having adequate interest coverage, the Altman Z-Score suggests the company could be at risk of bankruptcy.
The company’s profitability scored a 4 out of 10 rating on the back of return on equity, assets and capital that underperform a majority of competitors. Its margins are healthy, however. Berry is also supported by a Piotroski F-Score of 5 out of 9, meaning operations are typical for a stable company.
With a 14.39% stake, Marks’ firm remains the largest guru shareholder of Berry. Hotchkis & Wiley, Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Azvaor Managers FI and Barrow, Hanley, Mewhinney & Strauss also have positions in the stock.
The company has also recorded heavy insider selling in recent months, with five transactions in May and four so far in June. As Oaktree is considered an insider with more than 10% of the company’s outstanding shares, however, it makes up a majority of these trades.
Portfolio composition
Oaktree's $8.53 billion equity portfolio, which the 13F filing showed was composed of 242 stocks as of March 31, is heavily invested in the energy sector, followed by smaller positions in the industrials, financial services and utilities spaces.
Other energy stocks Marks’ firm held as of the end of the first quarter included Chesapeake Energy Inc. (CHK, Financial), TORM PLC (TRMD, Financial), Weatherford International PLC (WFRD, Financial), Petroleo Brasileiro SA Petrobas (PBR, Financial) and Civitas Resources Inc. (CIVI, Financial).
