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Donald Smith Files 13G for JBLU; David Nierenberg Files 13D for AACC
Posted by: guruhl (IP Logged)
Date: April 19, 2011 06:51PM
Donald Smith filed a 13G on April 8, 2011, reporting that he increased his stake in Jetblue Airways Corp. (JBLU). David Nierenberg filed a 13D on April 18, 2011, reporting that he increased his stake in Asset Acceptance Capital Corp. (AACC).
Donald Smith added 55.08% of Jetblue Airways Corp. (JBLU) at the average price of $5.86 on April 8, 2011, as reported in the latest 13G filings. He owns 29,467,039 shares, or 10.06% of the company. The stock price has changed by -6%.
JetBlue Airways is a low-fare, low-cost passenger airline, which provides high-quality customer service primarily on point-to-point routes and is based in New York's John F. Kennedy Airport. Jetblue Airways Corp. has a market cap of $1.63 billion; its shares were traded at around $5.53 with a P/E ratio of 18.4 and P/S ratio of 0.4. Jetblue Airways Corp. had an annual average earnings growth of 16.6% over the past 10 years.
Donald G. Smith is the CIO of Donald Smith & Co., a $3.6 billion investment advisory firm that has had an annualized return of 12.1% over the last 10 years, compared to 0.4% for the S&P 500. Smith is a deep-value manager who employs a strict bottom-up approach. He focuses on the stocks of out-of-favor companies that sell at discounts to tangible book value, are at the bottom docile of price-to-tangible book ratios, and have positive earning potential over the next 2-4 years.
JetBlue stock aligns with Smith’s criterion of having a low price-to-book ratio. The P/B ratio for JetBlue has risen as high as 7.6 since its founding, but now stands at 1.0, just slightly higher than its historical low of 0.7, according to GuruFocus data. The low P/B ratio of JetBlue suggests that it may be undervalued. Its stock has declined 18.11% year to date.
It is uncertain whether JetBlue meets Smith’s criterion of having positive earnings potential for the upcoming 2-4 years. Last year, JetBlue reported profits of $97 million, an increase of 60% from 2009. However, it posted net income in the fourth quarter of 2010 of $9 million, down from $59 million in the third quarter of 2010, and down from $11 million from the same quarter of 2009. It has assets of $6.6 billion and liabilities of $1.09 billion.
JetBlue has reported positive news, but also faces some challenges. The airline’s traffic increased 7.1% year-over-year in March 2011, compared to their largest competitors, Delta Airlines, whose traffic increased 0.5%, and United Continental Holdings Inc., whose traffic declined 2.2% in March. Additionally, JetBlue will begin selling tickets on their website for Aer Lingus, American Airlines and Cape Air flights that include travel on JetBlue.
According to Zacks, “JetBlue will continue to benefit from rising demand, higher fares, cost control measures, additional ancillary revenue opportunities and future commercial partnerships,” but it will have to contend with “fuel price volatility, higher dependence on the New York metropolitan market, competitive pressures and automated technology.”
David Nierenberg added 4.74% of Asset Acceptance Capital Corp. (AACC) at the average price of $5.4 on April 18, 2011, as reported in the latest 13D filings. He owns 5.57 million shares. The last time Nierenberg acquired the stock in 2008, it was $10.7 per share. It now comprises approximately 10% of his total assets.
David Nierenberg is the founder of D3 Family Funds, a $350 million hedge fund. D3 focuses on micro-caps with equity market capitalizations up to $1.5 billion.
Asset Acceptance provides credit originators, such as credit card issuers, consumer finance companies, retail merchants, utilities and others – an efficient alternative in recovering defaulted consumer debt. Asset Acceptance Capital Corp. has a market cap of $163 million; its shares were traded at around $5.32 with a P/E ratio of 532 and P/S ratio of 0.8. Its shares have declined 10.62% year to date.
In the fourth quarter of 2010, Asset Acceptance Capital reported net loss of $6.99 million, down from a profit of $4.25 million in the third quarter of 2010 and up from a loss of $20.24 million in the fourth quarter of 2009. TTM net income was a loss of $1.61 million as of Dec. 31, 2010. Its operating margin was up to 3.0% in 2010 from negative 6.8% the year prior. It had current liabilities of $187 million as of Dec. 31, 2010.
In December 2010, the company announced cost reduction actions. It shuttered its Cleveland, Ohio, collections office, reducing operating expenses by approximately $3.0 million per year. The closing will cost the company restructuring charges of $1.5 million or $0.03 per fully diluted share. Asset Acceptance incurred a charge of approximately $5.3 million or $0.10 per fully diluted share in the fourth quarter for terminating a third-party service provider, but estimates that the resulting operating expense savings will amount to approximately $7.5 million over the next three years.
President and CEO of Asset Acceptance Capital Corp. Rion Needs stated, "These actions reflect our continued efforts to further streamline our operations and aggressively align our cost structure to improve our competitive positioning and enhance shareholder value. Collection efforts previously housed in the Cleveland office will be transferred to other offices throughout our collections network. We anticipate that these actions will favorably impact overall profitability and productivity without sacrificing top-line collections."
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Guru Discussed: Donald Smith: Current Portfolio, Stock Picks
David Nierenberg: Current Portfolio, Stock Picks
Stocks Discussed: JBLU, AACC,