Elliot Management, an investment firm headed by billionaire investor Paul Singer (Trades, Portfolio), has sold a major portion of its stake in Emulex Corp (ELX, Financial) by 71.15%.
The sold stake was reported November 6, 2014 in a 13-F filing reflecting a decrease in 3,586,000 shares, giving them 1,454,284 shares in total, or 2% of Emulex’s outstanding shares.
Singer is effectively saying he is on to greener pastures, and seems to be putting his money to better use elsewhere.
Singer had been building the position in Emulex since the second quarter 2012, but began selling in the fourth quarter 2013.Â
Emulex provides support for networks that cater to enterprise, cloud, government, and telecommunications worldwide.
The company’s shares are down more than 25% over the past 12 months and closed at $5.94 per share last Thursday, near an all-time low of $4.72.
Quarterly financial results
For its most recent quarter, Emulex reported revenue of $99.8 million, compared to $114.8 million in the same quarter a year ago. Net Earnings were a loss of $700 thousand (or $0.01 earnings per diluted share) for the quarter.
CEO Jeff Benck was pleased with the operational execution of the Emulex team overall. He believes they will be able to benefit with two major server upgrade cycles this year (IBM Power 8 and Intel Grantley).
Emulex’s 10-year revenue and earnings history
Emulex has been repurchasing shares hand over fist as shares have plunged. They decreased overall shares outstanding from 93.5 million to 77.8 million (a decrease of 17% in shares outstanding). They are authorized to purchase an additional ~$50 million under the share repurchase program.
Cash on Emulex’s balance sheet totaled $158.4 million as of August 28, 2014.
Conclusion
While we give slightly less weight to the technical picture, we do glance at the charts from time-to-time because of our hybrid approach to value investing.
This stock does show signs of a potential capitulatory type bottom and basing pattern. You can see this from the big volume selloff in early May. Seeing this type of big volume capitulation type move does make this interesting.
By traditional metrics, Emulex does appear to be undervalued.
Emulex is a business currently trading at a P/FCF of 7.98, P/BV of .9, EV/EBITDA of 9.77.
They sport a FCF yield over 10%.
So we have a business that seems to be fairly undervalued and shareholder friendly.
We have no bone to pick in this company; however, the recent exit of activist investor Paul Singer (Trades, Portfolio) (who has in-depth knowledge of operations and the board) should signal some warning flags.
