Investment firm Tweedy Browne (Trades, Portfolio) Co. increased its position in MRC Global Inc. (MRC, Financial) by 7.6% on Dec. 31.
Tweedy Browne was established in 1920 by Forrest Birchard Tweedy. Its current managing directors are William H. Browne, John D. Spears, Thomas H. Shrager and Robert Q. Wyckoff Jr. The firm’s investment approach is derived from the work of Benjamin Graham. It seeks to uncover a company’s intrinsic value by determining its acquisition value or by estimating the value of its assets and cash flow.
The New York-based firm bought 340,642 shares for an average price of $20.26. It now holds 6,085,577 shares. The firm established its initial position of 4,938,719 shares for an average price of $13.06 in the third quarter of 2015.
MRC Global distributes pipes, valves and fittings to the energy industry. The Houston-based company has a market cap of $1.87 billion and an enterprise value of $2.5 billion. It was trading around $19.81 on Monday with a price-book (P/B) ratio of 4.22 and a price-sales (P/S) ratio of 0.6.
The Peter Lynch chart below shows the stock is trading above its intrinsic value.
GuruFocus ranked the company’s financial strength 5 of 10. The Piotroski F-Score of 3 and Altman Z-Score of 1.57 suggest the company is in poor business condition and at risk of filing for bankruptcy within the next two years, which is likely due to the state of the oil and gas industry.
In regard to MRC Global’s profitability and growth, it was ranked 3 of 10 by GuruFocus. It has an operating margin of -14.7% and a net margin of -13.9%. The return on equity (ROE) and return on assets (ROA) are underperforming 84% and 80% of other companies in the global oil and gas equipment and services industry. Similarly, the return on capital (ROC) underperforms 87% of competitors.
The company reported in its third-quarter 2016 earnings a 26% loss in sales from the previous year as a result of reduced customer activity due to lower oil and natural gas prices. However, the company’s sales witnessed a 6% improvement from the previous quarter, marking the first quarter of sequential revenue growth since 2014. The company’s upstream business experienced 15% sequential growth as well. These improvements from the previous quarter were due to increased customer spending in the company’s upstream and midstream businesses from the recent rise in oil and gas prices.
In addition, the company increased its share repurchase program to $125 million in November from its previous amount of $100 million.
MRC Global President and CEO Andrew Lane said he is encouraged by recent improvements in market conditions and expects 2017 revenue to improve over 2016.
Tweedy Browne is the company’s largest investor among the gurus with 5.04% of outstanding shares. This represents 2.93% of its total assets managed. During the third quarter, Pioneer Investments (Trades, Portfolio) also added to its position in MRC by 38.8%. Joel Greenblatt (Trades, Portfolio), Arnold Schneider (Trades, Portfolio) and Jim Simons (Trades, Portfolio) reduced their positions.
Tweedy Browne holds two other oil and gas services stocks. They are Halliburton (HAL, Financial) and NOW Inc. (DNOW, Financial). The firm has a 17% weight in energy stocks overall.
MRC Global will report its fourth-quarter 2016 earnings on Feb. 16.
Disclosure: I do not own stock in any companies mentioned in the article.
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