Jean-Marie Eveillard of First Eagle Investment (Trades, Portfolio) seeks long-term capital appreciation through the conviction that absolute long-term performance is the best way to preserve capital. During first-quarter 2017, Eveillard cut positions in five companies: Comcast Corp. (CMCSA, Financial), The Timken Co. (TKR, Financial), Molson Coors Brewing Co. (TAP, Financial), Qualcomm Inc. (QCOM, Financial) and The Hershey Co. (HSY, Financial).
Comcast
Eveillard chopped 21.53% of his Comcast position, selling 9,548,268 shares at an average price of $37.11. The guru pared 0.84% of his portfolio with this transaction.
Comcast has a profitability rank of 9, which normally suggests good growth potential. The company’s profit margins and returns are near a 10-year high and outperform over 80% of competitors. Comcast also has a strong Piotroski F-score of 7, driven by increases in the company’s current ratio and asset turnover during the past five quarters.
Although the company had strong profit margins, Comcast’s revenue per share and EBITDA per share tumbled 10.70% and 9.50% in 2016. The company’s 4.5-star predictability rank is on watch, implying that the company’s business situation is deviating from historical trends. Additionally, Comcast’s Altman Z-score of 1.80 suggests moderate financial distress.
Comcast’s share price of $38.98 is near a 10-year high while its price-sales (P/S) and price-book (P/B) ratios are near a five-year high. Six gurus, including Donald Yacktman (Trades, Portfolio), sold shares in Comcast even though the company is one of the most broadly held guru stocks.
Timken Co.
Eveillard sold all but 20,500 shares of Timken, slashing 99.62% of his holding. The mechanical manufacturing company’s share price averaged $44.08 during the quarter.
Timken’s profitability ranks a weak 4 out of 10, suggesting limited growth potential. The company has declining gross margins and per-share revenue, which implies loss of competitive power.
Although the company has moderately strong financial strength, Timken has poor interest coverage and cash-to-debt ratios, which are near 10-year lows and underperform over 70% of competitors. The company issued over $500 million in debt since December 2014.
Molson Coors and Qualcomm
Eveillard dumped Molson Coors from his portfolio, selling his 1,895,343 shares at an average price of $97.64 per share. The guru also divested his 2,254,453-share stake in Qualcomm at an average price of $58.02 per share.
The brewing company, well-known for its Coors Light beer, reported a 0.5% decrease in net sales in first-quarter 2017 compared to first-quarter 2016 results. Net income on an as-reported basis underperformed prior-year results by approximately $56 million while EBITDA dropped 3.6%. These results contributed to a three-year revenue growth rate of 0.10, which underperforms 62% of global competitors.
Although the company reported good revenue and earnings growth during second-quarter 2017, Qualcomm expects third-quarter earnings to underperform due to the risk that Apple Inc.’s (AAPL, Financial) contract manufactures will underpay royalties owed under their contracts with Qualcomm during the quarter. Revenues and earnings can decrease as much as 12% and 31% year over year.
Hershey
Eveillard axed 57.81% of his stake in Hershey, a well-known U.S. confectioner. The company’s share price averaged $107.23 during the quarter.
During first-quarter 2017, Hershey reported $125 million in net income and 58 cents in earnings per share, underperforming prior-year values by nearly 50%. Net sales increased 2.8%, which was slightly less than the forecasted value according to Hershey CEO Michele Buck. The CEO also gave a weak outlook in the company’s net sales growth in the U.S. and China due to macroeconomic challenges in the stated regions.
While the company’s operating margin outperforms 84% of companies, the margins have declined approximately 2.4% per year on average during the past five years. The company’s share price, price-earnings (P/E) ratio and P/S ratio are currently near 10-year highs. These warning signs suggest that Hershey has decreasing growth and value potential for 2017.
See also
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Disclosure: The author has no positions in the stocks mentioned in the article.
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