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FPA Capital Initiates Alliant Techsystems Position and Increases DeVry Position

October 18, 2012 | About:
Holly LaFon

Holly LaFon

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FPA Capital is a fund at value-oriented investment company First Pacific Advisors. In the third quarter, only one new stock was added to its portfolio: Alliant Techsystems Inc. (ATK). Shares were also added to its DeVry (DV) holding and one stock was sold out, Amerigroup Corp. (AGP). Five others were reduced. FPA Capital’s portfolio contains 25 stocks, unchanged from the previous quarter, and is 44.2% weighted in the oil and gas industry.

FPA Capital bought 52,400 Alliant Techsystems (ATK) shares at an average price of $49 in the third quarter. The holding is its smallest, at a 0.32% weighting in his portfolio. ATK stock has declined 50% over the last five years.

ATK operates in three segments: aerospace, defense and sporting. It does business in 21 states, Puerto Rico and internationally. It produces ammunition for the military, sporting and law enforcement markets. ATK also manufactures solid rocket motors and supporting tactical, strategic, missile defense and space launch applications.

Alliant Techsystems has a $1.7 billion market cap; its shares were traded at around $55.2 with a P/E ratio of 6.2 and P/S ratio of 0.4. ATK’s dividend yield is 1.5.

In each of the last five years, ATK grew revenue per share at an annual rate of 5%, revenue at 8% and book value at 17.2%. It also produced positive free cash flow in each of the last five years.

In ATK’s first quarter of fiscal year 2013 (ended on July 1, 2012), it reported flat year-over-year sales of $1.1 billion. Results reflected a 4.5% defense group and 19.2% sporting group increase in sales, which was offset by a 16.7% decrease in aerospace group sales. The aerospace group’s decline was partially due to lower NASA and commercial aerospace structures revenue. The defense group sales increase was driven primarily by higher volume and updated sales and profit rates as the company completed contracts at an ammunition plant. The sporting group increased primarily due to higher volume in both its ammunition and accessories divisions.

The first quarter results and a lower-than-expected full-year tax rate prompted ATK to raise its full fiscal-year 2013 sales guidance to $4.05 billion to $4.15 billion. Previously it was $4.0 billion to $4.1 billion. It also expected earnings per share of $7.00 to $7.30, up from $6.25 to $6.55 it expected previously.

GuruFocus rated Alliant Techsystems the business predictability rank of 4-star.

FPA Capital increased his stake in DeVry (DV) by 44.6%, or 304,233 shares at an average price of $23 in the third quarter. At quarter end, it owned 987,100 shares in total, which is 2.7% of the portfolio.

DeVry is the for-profit education company that operates DeVry Institutes of Technology, DenverTechnical College, Keller Graduate School of Management and Becker Conviser CPA Review.

DeVry’s shares traded for $23.21 on Tuesday, after declining 41% over the last five years, and 40% year to date. The company has a $1.52 billion market cap, a P/E ratio of 7.4 and P/S ratio of 0.7. Its dividend yield is 1.3%.

DeVry’s stock dropped 25% from July 23 to July 24 when it announced fourth-quarter guidance below analysts’ estimates. DeVry announced fourth quarter revenue guidance of $500 million to $510 million and earnings per share (EPS) guidance of $0.43 to $0.46. I/B/E/S estimates were $517 million of revenue and EPS of $0.78 for the fourth quarter of 2012. Fourth-quarter revenue, announced Aug. 9, came in at $505.9 million, and EPS excluding discrete items was $0.47.

DeVry student enrollment has been declining for multiple quarters. The trend continued in the third quarter, as summer enrollment decreased 3.4% from the third quarter of 2011. This is slightly slower than the spring second quarter of 2012, in which enrollment declined 3.7% from the second quarter of 2011.

The company is executing a plan to improve its near-term performance, according to DeVry president and executive officer Daniel Hamburger. “The most important elements of the plan are to align our cost structure with our enrollment levels and to regain enrollment growth in our high-quality academic programs,” he said.

In the last five years, DeVry’s revenue grew at a pace of 21.8% annually, and EBITDA at 31.2%. The for-profit industry has faced significant headwinds though recently for questionable recruiting practices, tuition costs and dropout rates. In July 2012, the Senate released a critical report of the industry, in which it named DeVry as having the highest bachelor’s degree dropout rates at 56%.

Rating: 2.5/5 (14 votes)

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