David Einhorn (Trades, Portfolio), president of Greenlight Capital Re Ltd. (GLRE, Financial), announced on Thursday that his fund gained 5.8% for the second quarter, bringing the year-to-date return to 17.4%. He also announced three new holdings: The Chemours Co. (CC, Financial), Dillard’s Inc. (DDS, Financial) and Scientific Games Corp. (SGMS, Financial).
Fund continues gain, boosted by Tesla short
While Tesla Inc. (TSLA, Financial) left a dent in the value of the equity portfolio for the nine gurus that were long the stock, Einhorn scored a victory with his short position as the stock closed at $229.74, down approximately 13.27% from Wednesday’s close of $264.88.
Shares of the Elon Musk-led company sank on the heels of reporting a June-quarter net loss of $408 million, or $1.12 in loss per share. The per-share loss exceeded the consensus estimate by approximately 60 cents.
Wedbush Securities Managing Director Dan Ives said on CNBC’s “Closing Bell” Wednesday that Tesla’s earnings “was a punch in the gut for the bulls” as gross margins tumbled 1% from the prior-year quarter’s margin of 15.5%. Further, GuruFocus warned that Tesla’s gross margins have tumbled 5.7% per year on average over the past five years, a sign of declining profitability.
Chemours
Wilmington, Delaware-based Chemours produces titanium oxide, a white pigment used in paint. GuruFocus ranks the company’s profitability 5 out of 10: While it has expanding profit margins and a moderately strong Piotroski F-score of 5, Chemours’ three-year revenue growth rate of 5.10% underperforms 72.17% of global competitors.
Einhorn said in his shareholder letter that shares of Chemours declined during the quarter on the back of bear cases ranging from new liabilities in the company’s firefighting foams and continuing legacy liabilities regarding perfluorooctanoic acid. Despite this, the Greenlight manager debunked the bear cases, saying that such costs are approximately in the tens of millions of dollars instead of billions of dollars as suggested by the bears. Further, Einhorn sees good potential in the stock’s earnings, which are expected to increase in the upcoming years as the “industry destocking” is in the rear-view mirror.
Dillard’s
Little Rock, Arkansas-based Dillard’s operates department stores that retail fashion apparel, cosmetics and home furnishings. GuruFocus ranks the company’s profitability 7 out of 10: Even though profit margins are underperforming 61.60% of global competitors, Dillard’s has a solid Piotroski F-score of 6 and a three-year revenue growth rate that outperforms 63.01% of global competitors.
Einhorn said his fund rekindled a stake in Dillard’s, a retail operator he believes has “low leverage and strong liquidity.” According to the latter, the company reported positive comparable store sales for the past six quarters, with earnings before interest, taxes, depreciation and amortization margins of approximately 7.5%.
Scientific Games
Las Vegas-based Scientific Games provides gaming products, systems and services to the lottery and pari-mutuel industries. GuruFocus ranks the company’s profitability 7 out of 10 on the heels of strong operating margins and Joel Greenblatt (Trades, Portfolio) return on capital. Despite this, Scientific Games’ financial strength ranks a poor 3 out of 10, driven by weak interest coverage and an Altman Z-score that suggests possible financial distress.
Einhorn said in the letter that Scientific Games publicly listed its online social gaming business SciPlay Corp. (SCPL, Financial). As SciPlay continues to have access to Scientific Games’ content, SciPlay can have lower research and development costs than its competitors. Scientific Games trades below five times free cash flow according to Einhorn’s average entry price.
Disclosure: No positions.
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