Steve Mandel (Trades, Portfolio), founder of Lone Pine Capital, established a position in Rice Energy Inc. (RICE, Financial) on Jan. 23.
Mandel, a long-short equity money manager, founded his firm in 1997. The firm utilizes value and growth methodologies as well as fundamental analysis and a bottom-up approach to select stocks.
The guru purchased 11,688,668 shares of Rice for an average price of $20.47 per share. The trade had an impact of 1.1% on the portfolio. He holds 5.7% of outstanding shares.
Rice Energy is a Pennsylvania-based independent oil and gas company engaged in the acquisition, exploration and development of oil and gas properties in the Appalachian Basin. It has a market cap of $4.3 billion; its shares were trading around $21.3 on Wednesday with a forward price-earnings (P/E) ratio of 142.8, a price-book (P/B) ratio of 1.6 and a price-sales (P/S) ratio of 4.9.
The Peter Lynch chart below shows the stock is trading above its fair value.
GuruFocus ranked the company’s financial strength 5 of 10. The Piotroski F-Score of 4 and Altman Z-Score of 0.9 suggest the company has a stable business condition but is in danger of facing bankruptcy in the near future. Since the return on invested capital (ROIC) underperforms the weighted average cost of capital (WACC), the company is destroying value as it grows. In addition, since the cash-debt ratio of 0.9 falls below the standard of 1, the company is not able to cover outstanding debt with cash on hand.
Rice Energy’s profitability and growth was ranked 3 of 10 by GuruFocus. It has an operating margin of -64.7% and a net margin of -60.3%. The return on equity (ROE) underperforms 55% of other companies in the global oil and gas exploration and production industry. In contrast, the return on assets (ROA) and the return on capital (ROC) outperform 60% and 68% of competitors.
Andreas Halvorsen (Trades, Portfolio) has the largest holding of Rice among the gurus. He holds 7.4% of the company’s outstanding shares, which represents 1.7% of his total assets managed. In total, 10 gurus hold positions.
Mandel’s portfolio has a weight of 4.6% in the energy sector.
Rice Energy will report its fourth quarter and full-year 2016 results after market close on Feb. 22.
Disclosure: I do not own the stock mentioned in the article.
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