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Third Avenue Management Reduces Electronics for Imaging and National Western Life Insurance

July 12, 2011 | About:
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teddycx

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Managing mutual funds, separate accounts, and hedge funds, Third Avenue Management was founded by the legendary value investor Martin Whitman. As such, it employs a similar investing philosophy as its chairman, using the current balance sheet to determine a company's value rather than future projections of revenue and earnings. The fund targets underpriced companies that have capable management and strong finances. Despite recent struggles that attribute to its underperformance in five-year cumulative return compared to the S&P 500, it has a ten-year cumulative return of 91.5% that outperformed the S&P 500's 16.4% return. According to the latest 13G filings, Third Avenue Management has reduced holdings in Electronics for Imaging, Inc. (EFII) and National Western Life Insurance Company (NWLI).

Electronics for Imaging, Inc. (EFII)

Over the past three years, Third Avenue Management has bought and sold Electronics for Imaging in correlation to the stock's subtle changes in price. It first began to sell shares of EFII as its price rose from an average of $9.20 in the first quarter of 2009 to $12.28 in the first quarter of 2010, eventually reducing its holdings by roughly 500,000 to a total of just under 4 million shares. When EFII stock prices dipped back down over the next two quarters to an average of $10.80, Third Avenue Management added another 163,782 shares of the company before steadily selling off nearly 200,000 shares as prices rose above $15. It most recently sold 41.72% of its shares for a price of $17.49, one of the highest prices EFII has seen since January 2008, and its current holdings stand at 2,259,515.

Electronics for Imaging, Inc. designs and markets products that support color and black-and-white printing on a variety of peripheral devices. Its products incorporate hardware and software technologies that transform digital copiers and printers from many leading copier manufacturers into fast, high-quality networked printers. The company's products include stand-alone servers, which are connected to digital copiers and other peripheral devices, and controllers, which are embedded in digital copiers and desktop color laser printers.

According to the company's latest quarterly reports, revenues have decreased since last quarter by $5 million to $140 million. Net income also decreased by 1.8 million since last quarter to a $6.25 million profit. However, year-over-year revenues have grown by 26%, and this quarter's net income is an improvement over last year's $11.4 million loss. These gains have been attributed to the company's increased focus on the "fastest growing segments of printing," with growth across all three of their businesses. Free cash flow was $8.46 million, a drop-off from last quarter's amount of $22.86 million.

The stock currently trades with a P/E ratio of 33.0, lower than its recent historical average, and a P/S ratio of 1.6, also lower than its historical average. Quarterly earnings per share are at 0.13, the third straight quarter of positive EPS after nearly two years of negative EPS.

On 5/24/2011, Electronics for Imaging demonstrated its latest innovative UV-curable ink technologies for the wide-format digital printing industry and its expanding array of software products for customers at this year's FESPA Digital. The new machines are designed to improve productivity, quality, and ease of use.

On 6/15/2011, Electronics for Imaging announced that MOSAIC, a printing and distribution service company, selected a suite of EFI technologies to streamline their operations, expanding the relationship between the two businesses.

National Western Life Insurance Company (NWLI)

National Western Life Insurance stock prices have recovered well after it plummeted drastically from $250 to less than $75 between middle 2008 and early 2009. Since 2009, Third Avenue Management has been steadily selling its shares of NWLI, save for a single instance when it added a mere 50 shares of the company. As the average price of the stock increased to over $170 over the next six quarters, Third Avenue Management's holdings decreased by from just over 325,000 to just under 300,000. After it reduced its holdings again in the first quarter of 2011 by 51,999 shares for an average price of $167.73, Third Avenue Management once again reduced its holdings of NWLI, this time by 31.86% at an price of $160.53 per share. It now holds 149,533 total shares of stock.

National Western Life Insurance Company is a life insurance company, chartered in the State of Colorado in 1956, and doing business in forty-nine states, the District of Columbia and four U.S. territories or possessions. It is also licensed in Haiti, and although not otherwise licensed, the Company accepts applications from and issues policies to residents of various Central and South American, Caribbean, and Pacific Rim countries. National Western operates within segments organized along product types and geographic marketing areas. These operating segments include domestic life insurance, international life insurance, and annuities.

In their latest quarterly statements, total revenues increased year-over-year from $144 million to $180 million but decreased quarter-over-quarter by $4 million. This increase from last year was primarily a result of increases in net investment income. Net earnings decreased by $200,000 since last year and by $1.5 million since last quarter largely due to increases in universal life and annuity contract interest that increased the company's expenditures. Free cash flow was at $50 million, worse than last year's $76.4 million figure but improving on last quarter's loss of $530,000. According to President Ross R. Moody, annuity sales increased 26% over last year, helping lead the company's growth.

NWLI stock currently trades at a three-year near-low P/E ratio of 7.79 and a similarly near- low P/S ratio of .91. Quarterly earnings per share are right in line with its ten-year average at 5.02 and quarterly sales per share are above its -ten-year average at 49.69.

According to A.M. Best's assessment of the company, the financial strength of National Western Life Insurance is rated as "A" (excellent) due to its "profitable net operating performance, the absence of financial leverage in its capital structure and a conservative fixed-income investment portfolio" as well as its strong competitive position on the international insurance scene and its strong cash flow analytics.

This is part of GuruFocus Real Time Picks report, which reports the stock trades of Gurus within the last few days. For more information, go to Real Time Picks.


Rating: 3.0/5 (9 votes)

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