David Einhorn (Trades, Portfolio) boosted his stake in Consol Energy Inc. (CNX, Financial) by 43.85% on Monday, according to Real Time Picks.
Einhorn’s position after the buy totaled 29,609,565 shares, or 12.9% of the company, from 20,583,070 shares held at the end of the first quarter. He initiated the holding in the third quarter of 2014 and added shares in the following two quarters.
The company’s stock on Monday, the day of Einhorn’s reported purchase, fell to a 52-week low price of $15.47. The stock has declined by 47.2% year to date, closing at $17.84 on Thursday.
Mason Hawkins (Trades, Portfolio)’ Longleaf Partners also added shares to their Consol position on July 20.
The price low point came as Consol announced that it expected a second quarter loss from operations due to lower commodity prices. The company also said it expected flat total production guidance for E&P and coal from the previous quarter.
Einhorn discussed the Consol investment in his second quarter investor letter:
Our other significant loser in the quarter was CONSOL Energy (NYSE:CNX), which fell from $27.89 to $21.74. While natural gas prices were stable during the quarter, coal prices fell about 10%. Near-term this is not a significant concern, as CNX prices are locked in under long-term contracts for almost all of 2015 and about half of 2016-2018 production.
Assuming unhedged forward pricing for coal and natural gas, our long-term resource runoff model values CNX at about $35 per share. This is based on depressed commodity prices and does not give credit for the company’s implementation of zero-based budgeting, which should further improve its position as the low-cost supplier.
Einhorn also on July 9 acquired a stake in the company’s master limited partnership, CNX Coal Resources (CNXC, Financial), of 5 million common units at $15 each in a private placement, according to the company’s statement from June 30.
He mentioned the company in his second quarter letter:
From a strategic perspective, the company recently completed an IPO of a master limited partnership for its coal business. Because investor appetite for coal is exceptionally small at the moment, the offering was met with tepid demand. We were able to purchase shares at a 25% discount to the proposed range. The new entity, CNX Coal Resources (NYSE:CNXC), has an initial dividend yield of over 13.5% and a free cash flow yield of over 17%. At that value, distress is priced in, though it is far from evident that distress actually exists.
Greenlight Capital funds lost 3.3% net of fees in the first half of the year, compared to a 1.2% return for the S&P 500.
