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Sydnee Gatewood
Sydnee Gatewood
Articles (784) 

Mason Hawkins’ Southeastern Further Extends Its Kodak Moment

Longleaf manager also boosts stake in CNX Resources

June 11, 2019 | About:

Southeastern Asset Management, the investment firm founded by Mason Hawkins (Trades, Portfolio) in 1975, disclosed on Monday it expanded its holdings of Eastman Kodak Co. (NYSE:KODK) and CNX Resources Corp. (NYSE:CNX).

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.

Eastman Kodak

According to GuruFocus Real-Time Picks, a Premium feature, the firm boosted its Eastman Kodak stake by 866.78% on June 10, buying 42.9 million shares. It now holds 47.95 million shares in total, representing approximately 1.72% of the equity portfolio. GuruFocus estimates Southeastern has lost 23% on the investment since the third quarter of 2016.

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The Rochester, New York-based technology company, which manufactures photography-related products such as film, digital and disposable cameras, printers and software, has a $102.77 million market cap; its shares were trading around $2.39 on Tuesday with a price-sales ratio of 0.08.

The price chart shows the stock has tumbled approximately 54% over the past 12 months.

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On May 21, the company announced it entered an agreement to sell a $100 million aggregate principle amount of its 5% Secured Convertible Notes, which are due in 2021, to funds managed by Southeastern. Kodak plans to use the proceeds of the sale to pay off its first-lien term loans as well as on general corporate purposes. The deal closed on May 24.

GuruFocus rated Eastman Kodak’s financial strength 4 out of 10. Weighed down by a low cash-debt ratio of 0.58 and declining revenue per share over the past several years, the weak Altman Z-Score of 0.72 warns the company is at risk of going bankrupt.

The company’s profitability and growth fared even worse, scoring a 3 out of 10 rating. While Eastman Kodak’s negative margins and returns are outperforming over half of its competitors, the low Piotroski F-Score of 0.72 suggests poor operating conditions. It also has a business predictability rank of one out of five stars. GuruFocus says companies with this rank typically see their stocks gain an average of 1.1% per year.

As of the end of the first quarter, Hawkins’ Southeastern was, by far, the company’s largest guru shareholder with 11.53% of outstanding shares. First Eagle Investment (Trades, Portfolio) also has a position in the stock.

CNX Resources

Southeastern also invested in 10.26 million shares of CNX Resources, expanding one of its largest positions by 21.8%. It now holds 57.3 million shares in total, which represent roughly 13.56% of the equity portfolio. According to GuruFocus, the firm has lost an estimated 55% on the investment since the first quarter of 2012.

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The natural gas producer, which is headquartered in Pittsburgh, has a market cap of $1.44 billion; its shares were trading around $7.34 on Tuesday with a price-earnings ratio of 8.76, a price-book ratio of 0.37 and a price-sales ratio of 0.83.

According to the Peter Lynch chart, the stock is undervalued as it is trading below its fair value.

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On April 30, CNX reported first-quarter results, posting adjusted earnings of 14 cents per share on $278.4 million in revenue. The company missed analyst estimates of 21 cents per share on $406 million in sales.

CNX Resources’ financial strength and profitability and growth were both rated 5 out of 10 by GuruFocus. In addition to inadequate interest coverage, the company is weighed down by a low Altman Z-Score of 0.87, which indicates it is in danger of bankruptcy.

Regardless, the company is supported by strong margins and returns that outperform over half of industry peers as well as a moderate Piotroski F-Score of 6, which indicates operating conditions are stable. The one-star business predictability rank is on watch as a result of CNX recording a decline in revenue per share over the last five years.

As of the end of the first quarter, Hawkins’ firm was the company’s largest guru shareholder with 24.07% of outstanding shares. David Einhorn (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Mario Gabelli (Trades, Portfolio) and Caxton Associates (Trades, Portfolio) are also shareholders.

Portfolio composition and performance

Southeastern’s $6.93 billion equity portfolio, which is composed of 30 stocks, is largely invested in the industrials and communication services sectors. As of the end of the first quarter, its five largest holdings were CenturyLink Inc. (NYSE:CTL), General Electric Co. (NYSE:GE), FedEx Corp. (NYSE:FDX), CNX and Mattel Inc. (NASDAQ:MAT).

The Longleaf Partners Fund said on its website it returned -17.98% in 2018. The S&P 500 Index posted a -4.38% return over the same period.

Disclosure: No positions.

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About the author:

Sydnee Gatewood
I am an editorial assistant at GuruFocus. I have a BA in journalism and a MA in mass communications from Texas Tech University. I have lived in Texas most of my life, but also have roots in New Mexico and Colorado. Follow me on Twitter! @gurusydneerg

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