Southeastern Asset Management, the investment firm founded by Mason Hawkins (Trades, Portfolio) in 1975, disclosed late last week it increased its stake in Realogy Holdings Corp. (RLGY, Financial) by 8.16%.
To achieve long-term capital growth, the Memphis, Tennessee-based firm, which manages the Longleaf Partners Funds, invests in a concentrated number of undervalued companies that have strong balance sheets and good management teams.
According to GuruFocus Real-Time Picks, a Premium feature, the firm invested in 897,905 shares of the Madison, New Jersey-based real estate services company on Nov. 30, impacting the equity portfolio by 0.26%. The stock traded for an average price of $15.19 per share on the day of the transaction.
The firm now holds a total of 11.9 million shares, which represent 3.42% of the equity portfolio. GuruFocus data shows Southeastern has lost an estimated 28.51% on the investment since establishing the position in the fourth quarter of 2017.
The company, which offers real estate franchise services, company-owned real estate brokerage services, relocation services and title and settlement services, has a $1.85 billion market cap; its shares were trading around $15.91 on Monday with a price-earnings ratio of 6.03, a price-book ratio of 0.87 and a price-sales ratio of 0.24.
The GF Value Line suggests the stock is fairly valued currently based on its historical ratios, past performance and future earnings projections.
Realogy reported its third-quarter results in October, posting earnings of 98 cents per share on $2.2 billion in revenue, which was a 15% increase from the prior-year quarter.
GuruFocus rated Realogy’s financial strength 4 out of 10. In addition to having weak interest coverage, the Altman Z-Score of 1.07 warns the company could be at risk of bankruptcy if it does not improve its liquidity. The return on invested capital is also being eclipsed by the weighted average cost of capital, meaning the company is struggling to create value as it grows.
The company’s profitability fared a bit better with a 6 out of 10 rating. Although its margins are in decline, Realogy’s returns on equity, assets and capital outperform over half of its competitors. It is also supported by a high Piotroski F-Score of 7 out of 9, indicating operations are healthy, and a predictability rank of one out of five stars. GuruFocus data shows companies with this rank return an average of 1.1% annually over a 10-year period.
Hawkins’ firm remains Realogy’s largest guru shareholder with a 10.21% stake. Other gurus who own the stock are Jeremy Grantham (Trades, Portfolio), Chuck Royce (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Pioneer Investments, Joel Greenblatt (Trades, Portfolio), First Eagle Investment (Trades, Portfolio) and Barrow, Hanley, Mewhinney & Strauss.
Portfolio composition and performance
Southeastern’s $5.27 billion equity portfolio, which was made up of 29 stocks as of Sept. 30, is largely invested in the communication services and consumer cyclical sectors.
Other stocks the firm owns in the real estate space as of the end of the third quarter are Empire State Realty Trust Inc. (ESRT, Financial) and Douglas Emmett Inc. (DEI, Financial).
Southeastern returned 10.26% in 2020, underperforming the S&P 500’s 18.4% return.
