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Sydnee Gatewood
Sydnee Gatewood
Articles (3406) 

Wallace Weitz Sees Value in First Hawaiian

Guru adds bank to portfolio in 4th quarter

Weitz Investment Management leader Wallace Weitz (Trades, Portfolio) disclosed one new position when he released his fourth-quarter 2019 portfolio earlier this week.

When picking stocks, the guru’s Omaha, Nebraska-based firm combines Benjamin Graham’s principles of price sensitivity and insistence on margin of safety with a conviction that qualitative factors that allow the company to control its future can be more important than statistical metrics like book value and earnings.

Based on these criteria, Weitz established a holding in First Hawaiian Inc. (NASDAQ:FHB) during the quarter.

First Hawaiian

The guru invested in 160,000 shares of the Honolulu-based bank, dedicating 0.18% of the equity portfolio to the position. The stock traded for an average price of $28.14 per share during the quarter.

In his commentary for the fourth quarter, Weitz said the bank, which is the largest and oldest financial institution in the state of Hawaii, is attractive due to low levels of competition from mainland banks, which have “yet to gain a foothold,” as well as steady growth.

“As a result, earnings are more predictable relative to banks of similar size, with advantaged funding costs, stable fee income and excellent credit quality,” he wrote.

First Hawaiian has a $3.84 billion market cap; its shares were trading around $29.59 on Friday with a price-earnings ratio of 13.83, a price-book ratio of 1.46 and a price-sales ratio of 5.91.

The Peter Lynch chart shows the stock is trading below its fair value, suggesting it is undervalued. Compared to its price-book value, however, it is overvalued.


The company reported fourth-quarter 2019 financial results on Jan. 28. It posted net income of $67.8 million, or earnings of 52 cents per share, up from $60 million, or 44 cents per share, in the prior-year quarter. Loans grew 1% to $13.21 billion, while noninterest income jumped 41.2% and net interest income fell 3% to $139.6 million. Deposits declined 4.1% from the year-ago quarter to $16.45 billion.

The bank’s full-year net income grew 7.6% to $284.4 million.

The board of directors also announced a quarterly dividend of 26 cents per share.

GuruFocus rated First Hawaiian’s financial strength 3 out of 10 on the back of a cash-debt ratio of 1.16, which is ranked lower than half of it industry peers, and a debt-equity ratio that outperforms 77.53% of competitors.

The bank’s profitability scored a 2 out of 10 rating despite having strong margins and returns that outperform a majority of industry peers.

With 2.84% of outstanding shares, Hotchkis & Wiley is the company’s largest guru shareholder. Other top investors include NWQ Managers (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, First Pacific Advisors (Trades, Portfolio), the FPA Capital Fund (Trades, Portfolio), Chuck Royce (Trades, Portfolio) and Steven Cohen (Trades, Portfolio). French banking giant BNP Paribas (XPAR:BNP), which at one time owned 100% of First Hawaiian, sold its remaining stake on Feb. 1.

Additional trades and portfolio composition

During the quarter, Weitz also added to a number of holdings, including Markel Corp. (NYSE:MKL), Expedia Group Inc. (NASDAQ:EXPE), Amazon.com Inc. (NASDAQ:AMZN), Liberty Latin America Ltd. (NASDAQ:LILAK), Vulcan Materials Co. (NYSE:VMC), Aon PLC (NYSE:AON), Analog Devices Inc. (NASDAQ:ADI), Perspecta Inc. (NYSE:PRSP) and Qurate Retail Inc. (NASDAQ:QRTEA), among others.

Roughly half of Weitz’s $2.53 billion equity portfolio, which is made up of 66 stocks, is invested in the financial services and communication services sectors.


According to its quarterly letter, the Weitz Partners III Opportunity Fund posted a return of 34.22% in 2019, slightly outperforming the S&P 500’s 31.49% return.

Disclosure: No positions.

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