David Einhorn Adds Consol Energy and AerCap, Boots Michael Kors and Time Warner From Top 5

New second-quarter letter released

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Jul 26, 2016
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David Einhorn (Trades, Portfolio) demoted Michael Kors (KORS, Financial) and Time Warner (TWC, Financial) from the top five positions in his portfolio during the second quarter, favoring AerCap Holdings (AER, Financial) and Consol Energy (CNX, Financial).

According to a letter out today, three holdings remained constant in his hedge fund, Greenlight Capital’s portfolio – gold, General Motors (GM, Financial) and Apple (AAPL, Financial) – which has spent more than a year at the top. No details about the positions will be reported until Einhorn discloses his second-quarter portfolio in the next few weeks.

AerCap, with a $7.4 billion market cap, is the world’s largest pure play aircraft lease and finance company. Einhorn has long been a fan of the Dublin-based company, boosting the position in almost each consecutive quarter since the second of 2014. In the first quarter, he had increased his shareholding by 23%, making it almost 6% of his portfolio.

Financially, AerCap has seen rapid growth in the past five years. It increased revenue at a rate of 18.9% annually, EBITDA at 26.9% and book value at 25.5%. Its number of owned aircraft also surged over the past decade from 109 to 1,096.

The most outstanding feature of the company’s balance sheet is its debt load, which increased to $30.4 billion in 2014 from $6.2 billion the prior year in connection with its purchase of a 46% stake in International Lease Finance Corp. from AIG Group Inc. (AIG, Financial). Fitch upgraded AerCap’s debt rating to ‘BBB-‘ from ‘BB+’ on Tuesday, citing the company’s “meaningful deleveraging” since the acquisition, good fleet management and “notably improved unencumbered asset coverage.” According to GuruFocus data, AerCap has reduced its debt-to-equity ratio from 3.87 in 2014 to 3.55 as of March 31.

AerCap also had $2.9 billion in cash at the end of the first quarter and turned a profit each year of the past decade, but generated cash flow only in 2014 and 2015 of the same period. Its price-earnings ratio is 6.7 and price-book ratio is 0.84. In the past year the company’s stock fell 19.7% to $36.35 a share.

Einhorn first invested in Consol, a natural gas and coal producer based in Pittsburgh, in the third quarter when its price averaged $40. On June 1 this year, he sold 7 million shares at an average price of $15.50, though the stock was rising. It soared 132% year to date, closing at $18.35 on Tuesday. He retains a 9.8% stake.

Einhorn’s Greenlight Capital funds fell 2.6% net in the second quarter, bringing its year-to-date return to 0.4%, versus a 3.8% S&P 500 gain. The almost flat half year already beats his 2015, in which he lost 20%.

See David Einhorn (Trades, Portfolio)’s portfolio here. Start a free 7-day trial of Premium Membership to GuruFocus.