Jeff Ubben (Trades, Portfolio)’s ValueAct Holdings disclosed in its first-quarter portfolio, which was released earlier this month, that it established one new position and divested of two others.
Known for its activist nature, the San Francisco-based firm usually takes large positions in a concentrated number of undervalued companies. It then works with management to maximize returns and unlock value for shareholders. Ubben stepped down as chief investment officer in July 2017, handing the reins to his protégé, Mason Morfit. He remains at the firm as CEO.
Based on these criteria, ValueAct opened a position in PG&E Corp. (PCG, Financial) during the quarter and closed its Aramark (ARMK, Financial) and Bloom Energy Corp. (BE, Financial) holdings, which it had just entered the previous quarter.
PG&E
The firm invested in 1 million shares of PG&E, allocating 0.20% of the equity portfolio to the stake. The stock traded for an average price of $16.19 per share during the quarter.
The San Francisco-based utility company, which has recently been beaten down for its alleged involvement in causing a string of California wildfires in 2017 and 2018, has a $9.38 billion market cap; its shares were trading around $17.36 on Wednesday with a forward price-earnings ratio of 4.99, a price-book ratio of 0.74 and a price-sales ratio of 0.55.
The median price-sales chart shows the stock is trading below its historical average, suggesting it is undervalued.
GuruFocus rated PG&E’s financial strength 6 out of 10. As a result of issuing approximately $4.8 billion in new long-term debt over the last three years, the company has poor interest coverage. The Altman Z-Score of -0.02 also warns it is in danger of going bankrupt. In late January, the electricity company did file for bankruptcy protection as a result of the repercussions of its involvement in causing some of the wildfires in California.
The company’s profitability and growth scored a 5 out of 10 rating. Although the operating margin is expanding, it still underperforms over 85% of competitors. PG&E is also weighed down by poor returns, but has a moderate Piotroski F-Score of 5, which indicates operations are stable. As a result of declining revenue per share over the last five years, the business predictability rank of one out of five stars is on watch. According to GuruFocus, companies with this rank typically see their stocks gain an average of 1.1% per year.
Of the 11 gurus invested in PG&E, David Abrams (Trades, Portfolio) has the largest stake with 4.72% of outstanding shares. Joel Greenblatt (Trades, Portfolio) also established a position during the quarter, while Seth Klarman (Trades, Portfolio) and David Tepper (Trades, Portfolio) added to their holdings.
Aramark
ValueAct sold all 229,230 shares of Aramark, impacting the equity portfolio by -0.12%. During the quarter, the stock traded for an average price of $31.01 per share. GuruFocus estimates the firm lost an estimated 13% on the investment since establishing it in the fourth quarter of 2018.
The food service company, which is headquartered in Philadelphia, has a market cap of $7.82 billion; its shares were trading around $31.73 on Wednesday with a price-earnings ratio of 15.27, a price-book ratio of 2.43 and a price-sales ratio of 0.49.
According to the Peter Lynch chart, the stock is trading near its fair value.
Aramark’s financial strength and profitability and growth were both rated 5 out of 10 by GuruFocus. As a result of poor interest coverage and issuing approximately $1.7 billion in new long-term debt over the last three years, the Altman Z-Score of 1.99 suggests the company is under some fiscal pressure.
Regardless, the company is strengthened by operating margin expansion, returns that outperform at least 60% of industry peers and a stable Piotroski F-Score of 6.
With 7.23% of outstanding shares, investment firm Barrow, Hanley, Mewhinney & Strauss is the company’s largest guru shareholder. Pioneer Investments (Trades, Portfolio), Greenblatt, Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Chuck Royce (Trades, Portfolio), Cohen and Paul Tudor Jones (Trades, Portfolio) also have positions in the stock.
Bloom Energy
Ubben’s firm divested of 250,000 shares of Bloom Energy, impacting the equity portfolio by -0.06%. Shares traded for an average price of $12.18 during the quarter. According to GuruFocus, ValueAct lost an estimated 35% on the investment since establishing it in the fourth quarter.
The San Jose, California-based utility company, which produces clean energy through fuel cell technology, has a $1.29 billion equity portfolio; its shares were trading around $11.24 on Wednesday with a price-sales ratio of 0.49.
The price chart shows the stock has tumbled approximately 55% since Bloom Energy’s initial public offering on July 25, 2018.
GuruFocus rated Bloom Energy’s financial strength 3 out of 10. In addition to a heavy debt load, the Altman Z-Score of -1.9 warns the company is at risk of going bankrupt.
The company’s profitability and growth fared even worse, scoring a 2 out of 10 rating as its negative margins and returns underperform a majority of industry peers.
Ron Baron (Trades, Portfolio) is Bloom Energy’s largest guru shareholder with 3.06% of outstanding shares. Pioneer Investments and Cohen also own the stock, having established positions during the first quarter.
Additional trades
During the quarter, ValueAct also boosted its holdings of Seagate Technology PLC (STX, Financial), Enviva Partners LP (EVA, Financial), Darling Ingredients Inc. (DAR, Financial), Lindblad Expeditions Holdings Inc. (LIND, Financial), Strategic Education Inc. (STRA, Financial) and Unifi Inc. (UFI, Financial).
The firm’s $9.1 billion equity portfolio, which is composed of 20 stocks, is heavily invested in the financial services sector with a weight of 61.11%.
Disclosure: No positions.
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