Steven Romick’s largest short positions in his FPA Crescent Fund in the first quarter are: Verizon Communications Inc. (VZ, Financial), Express Scripts Inc. (ESRX, Financial), Medco Health Solutions Inc. (MHS, Financial), AvalonBay Communities (AVB, Financial) and Essex Property Trust Inc. (ESS, Financial). He is the only Guru whose short positions GuruFocus reports.
Romick is primarily betting against apartment development companies and pharmacy benefits managers that compete with CVS Caremark (CVS, Financial) (his third largest holding). He said that one of his firm’s primary concerns in the current investment environment is inflation. He is seeking stocks of larger, higher quality businesses that have more exposure to foreign revenue sources and the ability to raise prices and grow unit volume. The companies in which he has taken short positions are not likely to reflect some or all of those criteria. The has lost money so far on all of his top-five short stocks.
Verizon Communications Inc.(VZ)
Romick has been increasing his short position in Verizon each quarter since the fourth quarter of 2009, when the stock price was $31.14 per share, to the third quarter of 2010, when the stock price dropped to $29.5 per share. In the first quarter of 2011, the stock increased to $36.21 per share. He has 880,000 short shares as of March 31, 2011.
Verizon Communications, formed by the merger of Bell Atlantic and GTE, is one of the world's providers of high-growth communications services. Verizon Communications Inc. has a market cap of $103.49 billion; its shares were traded at around $36.85 with a P/E ratio of 16.9 and P/S ratio of 1. The dividend yield of Verizon Communications Inc. stocks is 5.3%. Verizon Communications Inc. had an annual average earnings growth of 2.7% over the past 10 years. GuruFocus rated Verizon Communications Inc. the business predictability rank of 2.5-star.
Verizon Communications cashflow statement shows that the company generated 10-year-record free cash flow in 2010, though first-quarter 2011 free cash flow dropped to $672 million from previous quarters of free cash flow exceeding $3 billion each. The company has about $7 billion in cash on its balance sheet, and total long-term debt and other liabilities equaling $133 billion. Net income in 2010 declined to $2.6 billion from $3.7 billion in 2009.
Express Scripts Inc. (ESRX)
Romick shorted 292,000 shares of Express Scripts in the first quarter of 2011. The stock rose 10% year to date and 18.54% over the last year.
Express Scripts Inc. is one of the largest pharmacy benefit management companies in North America. Express Scripts Inc. has a market cap of $31.47 billion; its shares were traded at around $59.53 with a P/E ratio of 22.7 and P/S ratio of 0.7. Express Scripts Inc. had an annual average earnings growth of 28.6% over the past 10 years. GuruFocus rated Express Scripts Inc. the business predictability rank of 5-star.
Express Scripts generated 10-year-record free cash flow in December 2010 at almost $2 billion. The company has $540 million in cash on its balance sheet and long-term liabilities and debt of almost $7 billion.
In 2010, Express Scripts repurchased 26.9 million shares for $1.3 billion. In the first quarter 2011, the company increased the shares available for repurchase to 65.1 million and announced a debt offering of $1.5 billion of 3.125% senior notes, net proceeds of which it would use to repurchase its common stock or for general corporate purposes.
In the first quarter of 2011, the company’s free cash flow fell to $225 million from $240 in the fourth quarter 2010, due mainly to seasonality of client renewals, lower claims volume and implementation costs. In previous years, brand patent expirations offset these costs, as pharmacy benefits managers make more from generic drug sales than from sales of brand-name drugs. In the first quarter last year, the company generated free cash flow of $747 million.
The company also lost Walmart as a client (WMT, Financial), causing a reduction in submitted prescriptions.
In 2007, Express Scripts fought with CVS over the purchase of pharmacy benefit manager Caremark, which CVS won. CVS is Steven Romick’s third largest holding and comprises over 6% of his portfolio. In his comments at the 2011 Value Investing Congress, Romick said, “We believe that Caremark can outperform its peer group as it is now being better managed by Per Loftberg, the former Medco head as its president, and is poised to benefit vis-à -vis its competition.”
Medco Health Solutions Inc. (MHS)
Romick first took a short position in Medco Health Solutions in the first quarter of 2011 with 266,000 shares at an average price of $60.88 per share. Medco stock is up 3.8% year to date and 7.8% over the last year.
Medco Health Solutions Inc. is the nation's largest pharmacy benefit manager, or PBM. Medco Health Solutions Inc. has a market cap of $25.95 billion; its shares were traded at around $63.66 with a P/E ratio of 18 and P/S ratio of 0.4. Medco Health Solutions Inc. had an annual average earnings growth of 24.3% over the past 10 years.
In 2010, Medco Health Solutions’ free cash flow slipped to $2 billion in 2010 from $3.3 billion in 2009. In the first quarter 2011, it had its lowest free cash flow in a year at $50 million, down from $893 in the previous quarter and $258 million in the same quarter a year ago. Net income was the strongest in ten years at $1.4 billion.
Medco had mail-order prescriptions increase 1.8% to 27.7 million, including an increase of 9.3% in generic volumes, in the first quarter 2011. Their generic dispensing rate increased 3.4% to a record 73.1%, though no new generic were contributed in the first quarter. The company has a 99% client retention rate and acquired several new clients in the quarter. It also benefited from revenue generated by United BioSource Corp., a drug tester it acquired in August, 2010.
AvalonBay Communities (AVB)
Romick shorted 100,400 shares of AvalonBay Communities since the fourth quarter of 2009 at about $75 per share. He lost about $1 million on AvalonBay, as the stock has since risen to about $127 per share, and is up 12.7% year to date and 37% over the last year.
AvalonBay Communities Inc. is a real estate investment trust. AvalonBay Communities has a market cap of $10.75 billion; its shares were traded at around $125 with a P/E ratio of 30.4 and P/S ratio of 12. The dividend yield of AvalonBay Communities stocks is 2.9%.
In 2010, AvalonBay reported net income of $332 million, down slightly from $379 million in 2009. It generated free cash flow of $332 million, decreased from $379 million in 2009. The company has $306 million in cash on its balance sheet and long-term debt and liabilities of $4.5 billion. Earnings per share declined in the first quarter 2011 to $0.35 from $0.88 for the same period in 2010, due to a decrease in real estate sales and gains in 2010 which did not recur in 2011.
In the first quarter, rental revenue increased in every region of the country over the first quarter of 2010, an average of 3.7%. The company had no new development starts but completed three communities for a total cost of $234 million and acquired a high-rise community for $89 million. The company repaid a secured mortgage note worth $28,785,000 in March. For the second quarter, the company expects earnings per share in the range of $0.47 to $0.51 or slightly less due to acquisition costs left over from the first quarter.
Essex Property Trust Inc. (ESS)
Romick shorted 87,900 shares of Essex Property Trust in the fourth quarter 2009 at $80 per share. He lost about $4.5 million on Essex Property Trust. The stock now trades for $132 per share and has increased 15.7% year to date and 28% over the last year.
Essex Property Trust Inc. is a self-administered and self-managed real estate investment trust, engaged in the acquisition, refurbishing, marketing, leasing, management, development and construction of multifamily residential and retail properties. Essex Property Trust Inc has a market cap of $4.25 billion; its shares were traded at around $131.24 with a P/E ratio of 26.2 and P/S ratio of 10.2. The dividend yield of Essex Property Trust Inc. stocks is 3.1%. Essex Property Trust Inc. had an annual average earnings growth of 6.7% over the past 10 years.
First-quarter earnings fell 36%, and first-quarter net income totaled $8.4 million, down from $13.1 million from the same quarter in 2011. The company has $35 million cash on its balance sheet and about $3 billion in long-term liabilities and debt. It has been generating cash flow in the $100 millions since December 2004.
First-quarter market rents for the company’s portfolio increased 9.2% compared to the first quarter 2011. It acquired two new apartment complexes in California for $17 million and $31.4 million respectively and is developing four other properties. Three development properties were in lease-up during the first quarter. The company gained $4.5 million from sales of $26.8 million of marketable securities in the first quarter.
Apartment rent in the U.S. grew 4.65% for the year ending February 2011, according to apartment research firm Axioetrics. It was the largest gain since they began tracking rent data in 1996.
These are just the top five short positions of Steven Romick. If you would like to peruse his full list of shorts, click here.
Romick is primarily betting against apartment development companies and pharmacy benefits managers that compete with CVS Caremark (CVS, Financial) (his third largest holding). He said that one of his firm’s primary concerns in the current investment environment is inflation. He is seeking stocks of larger, higher quality businesses that have more exposure to foreign revenue sources and the ability to raise prices and grow unit volume. The companies in which he has taken short positions are not likely to reflect some or all of those criteria. The has lost money so far on all of his top-five short stocks.
Verizon Communications Inc.(VZ)
Romick has been increasing his short position in Verizon each quarter since the fourth quarter of 2009, when the stock price was $31.14 per share, to the third quarter of 2010, when the stock price dropped to $29.5 per share. In the first quarter of 2011, the stock increased to $36.21 per share. He has 880,000 short shares as of March 31, 2011.
Verizon Communications, formed by the merger of Bell Atlantic and GTE, is one of the world's providers of high-growth communications services. Verizon Communications Inc. has a market cap of $103.49 billion; its shares were traded at around $36.85 with a P/E ratio of 16.9 and P/S ratio of 1. The dividend yield of Verizon Communications Inc. stocks is 5.3%. Verizon Communications Inc. had an annual average earnings growth of 2.7% over the past 10 years. GuruFocus rated Verizon Communications Inc. the business predictability rank of 2.5-star.
Verizon Communications cashflow statement shows that the company generated 10-year-record free cash flow in 2010, though first-quarter 2011 free cash flow dropped to $672 million from previous quarters of free cash flow exceeding $3 billion each. The company has about $7 billion in cash on its balance sheet, and total long-term debt and other liabilities equaling $133 billion. Net income in 2010 declined to $2.6 billion from $3.7 billion in 2009.
Express Scripts Inc. (ESRX)
Romick shorted 292,000 shares of Express Scripts in the first quarter of 2011. The stock rose 10% year to date and 18.54% over the last year.
Express Scripts Inc. is one of the largest pharmacy benefit management companies in North America. Express Scripts Inc. has a market cap of $31.47 billion; its shares were traded at around $59.53 with a P/E ratio of 22.7 and P/S ratio of 0.7. Express Scripts Inc. had an annual average earnings growth of 28.6% over the past 10 years. GuruFocus rated Express Scripts Inc. the business predictability rank of 5-star.
Express Scripts generated 10-year-record free cash flow in December 2010 at almost $2 billion. The company has $540 million in cash on its balance sheet and long-term liabilities and debt of almost $7 billion.
In 2010, Express Scripts repurchased 26.9 million shares for $1.3 billion. In the first quarter 2011, the company increased the shares available for repurchase to 65.1 million and announced a debt offering of $1.5 billion of 3.125% senior notes, net proceeds of which it would use to repurchase its common stock or for general corporate purposes.
In the first quarter of 2011, the company’s free cash flow fell to $225 million from $240 in the fourth quarter 2010, due mainly to seasonality of client renewals, lower claims volume and implementation costs. In previous years, brand patent expirations offset these costs, as pharmacy benefits managers make more from generic drug sales than from sales of brand-name drugs. In the first quarter last year, the company generated free cash flow of $747 million.
The company also lost Walmart as a client (WMT, Financial), causing a reduction in submitted prescriptions.
In 2007, Express Scripts fought with CVS over the purchase of pharmacy benefit manager Caremark, which CVS won. CVS is Steven Romick’s third largest holding and comprises over 6% of his portfolio. In his comments at the 2011 Value Investing Congress, Romick said, “We believe that Caremark can outperform its peer group as it is now being better managed by Per Loftberg, the former Medco head as its president, and is poised to benefit vis-à -vis its competition.”
Medco Health Solutions Inc. (MHS)
Romick first took a short position in Medco Health Solutions in the first quarter of 2011 with 266,000 shares at an average price of $60.88 per share. Medco stock is up 3.8% year to date and 7.8% over the last year.
Medco Health Solutions Inc. is the nation's largest pharmacy benefit manager, or PBM. Medco Health Solutions Inc. has a market cap of $25.95 billion; its shares were traded at around $63.66 with a P/E ratio of 18 and P/S ratio of 0.4. Medco Health Solutions Inc. had an annual average earnings growth of 24.3% over the past 10 years.
In 2010, Medco Health Solutions’ free cash flow slipped to $2 billion in 2010 from $3.3 billion in 2009. In the first quarter 2011, it had its lowest free cash flow in a year at $50 million, down from $893 in the previous quarter and $258 million in the same quarter a year ago. Net income was the strongest in ten years at $1.4 billion.
Medco had mail-order prescriptions increase 1.8% to 27.7 million, including an increase of 9.3% in generic volumes, in the first quarter 2011. Their generic dispensing rate increased 3.4% to a record 73.1%, though no new generic were contributed in the first quarter. The company has a 99% client retention rate and acquired several new clients in the quarter. It also benefited from revenue generated by United BioSource Corp., a drug tester it acquired in August, 2010.
AvalonBay Communities (AVB)
Romick shorted 100,400 shares of AvalonBay Communities since the fourth quarter of 2009 at about $75 per share. He lost about $1 million on AvalonBay, as the stock has since risen to about $127 per share, and is up 12.7% year to date and 37% over the last year.
AvalonBay Communities Inc. is a real estate investment trust. AvalonBay Communities has a market cap of $10.75 billion; its shares were traded at around $125 with a P/E ratio of 30.4 and P/S ratio of 12. The dividend yield of AvalonBay Communities stocks is 2.9%.
In 2010, AvalonBay reported net income of $332 million, down slightly from $379 million in 2009. It generated free cash flow of $332 million, decreased from $379 million in 2009. The company has $306 million in cash on its balance sheet and long-term debt and liabilities of $4.5 billion. Earnings per share declined in the first quarter 2011 to $0.35 from $0.88 for the same period in 2010, due to a decrease in real estate sales and gains in 2010 which did not recur in 2011.
In the first quarter, rental revenue increased in every region of the country over the first quarter of 2010, an average of 3.7%. The company had no new development starts but completed three communities for a total cost of $234 million and acquired a high-rise community for $89 million. The company repaid a secured mortgage note worth $28,785,000 in March. For the second quarter, the company expects earnings per share in the range of $0.47 to $0.51 or slightly less due to acquisition costs left over from the first quarter.
Essex Property Trust Inc. (ESS)
Romick shorted 87,900 shares of Essex Property Trust in the fourth quarter 2009 at $80 per share. He lost about $4.5 million on Essex Property Trust. The stock now trades for $132 per share and has increased 15.7% year to date and 28% over the last year.
Essex Property Trust Inc. is a self-administered and self-managed real estate investment trust, engaged in the acquisition, refurbishing, marketing, leasing, management, development and construction of multifamily residential and retail properties. Essex Property Trust Inc has a market cap of $4.25 billion; its shares were traded at around $131.24 with a P/E ratio of 26.2 and P/S ratio of 10.2. The dividend yield of Essex Property Trust Inc. stocks is 3.1%. Essex Property Trust Inc. had an annual average earnings growth of 6.7% over the past 10 years.
First-quarter earnings fell 36%, and first-quarter net income totaled $8.4 million, down from $13.1 million from the same quarter in 2011. The company has $35 million cash on its balance sheet and about $3 billion in long-term liabilities and debt. It has been generating cash flow in the $100 millions since December 2004.
First-quarter market rents for the company’s portfolio increased 9.2% compared to the first quarter 2011. It acquired two new apartment complexes in California for $17 million and $31.4 million respectively and is developing four other properties. Three development properties were in lease-up during the first quarter. The company gained $4.5 million from sales of $26.8 million of marketable securities in the first quarter.
Apartment rent in the U.S. grew 4.65% for the year ending February 2011, according to apartment research firm Axioetrics. It was the largest gain since they began tracking rent data in 1996.
These are just the top five short positions of Steven Romick. If you would like to peruse his full list of shorts, click here.
