Alan Fournier (Trades, Portfolio), manager of the Pennant Investors family office, disclosed two new positions in his firm’s second-quarter portfolio report: Aramark (ARMK, Financial) and Micron Technology Inc. (MU, Financial). As of quarter-end, Pennant’s top four holdings are Charter Communications Inc. (CHTR, Financial), TransDigm Group Inc. (TDG, Financial), Blackstone Group Inc. (BX, Financial) and Antero Midstream Corp. (AM, Financial).
Prior to managing Pennant, Fournier managed global equity investments at David Tepper (Trades, Portfolio)’s firm, Appaloosa Management. The Pennant Investors manager founded the Summit, New Jersey-based firm in 2001 with $12 million from Tepper according to a March 28, 2018, Bloomberg article. Fournier closed the hedge fund on March 27, writing in a client letter that while he “takes pride in [Pennant’s] long-term returns,” given the firm’s low-risk portfolio structure, recent returns made Fournier frustrated by Pennant Capital’s “inability to match [Pennant’s] historical returns.”
Pennant Investors’ $227 million equity portfolio contains 15 stocks as of quarter-end. The top three sectors in terms of portfolio weight are technology, energy and communication services, with weights of 20.75%, 18.90% and 13.42%.
Aramark
Pennant Investors purchased 389,000 shares of Aramark, giving the position 6.19% weight in the equity portfolio. Shares averaged $32.38 during the quarter.
The Philadelphia-based company provides food, facilities and uniform services to a variety of clients and institutions. GuruFocus ranks Aramark’s financial strength 4.2 out of 10: Although the company’s Piotroski F-score ranks a solid 6 out of 9, its interest coverage and debt-to-equity ratio underperform over 84% of global competitors. The website also warns that Aramark’s long-term debt has increased by $1.7 billion over the past three years.
Jeremy Grantham (Trades, Portfolio) and 2019 GuruFocus Value Conference Speaker Mario Gabelli (Trades, Portfolio) also established a position in Aramark during the quarter.
Micron Technology
Pennant Investors purchased 35,000 shares of Micron Technology, giving the position 0.6% equity portfolio weight. Shares averaged $38.12 during the quarter.
Boise, Idaho-based Micron Technology provides dynamic random-access-memory (DRAM) chips for personal computers and servers. GuruFocus ranks the company’s financial strength 8 out of 10 on several positive signs, which include a strong Altman Z-score of 5.42 and interest coverage of 79.99, about 16 times greater than Benjamin Graham’s safe threshold of five. Other positive investing signs, which include a 3.5-star business predictability rank and expanding profit margins, contribute to a GuruFocus profitability rank of 8.
Paul Tudor Jones (Trades, Portfolio), Steven Cohen (Trades, Portfolio) and Tiger Management founder Julian Robertson (Trades, Portfolio) also established a holding in Micron Technology during the quarter. On the other hand, longtime investor Tepper sold 18.35 million of his 19.25 million shares.
Charter Communications
Charter Communications, the largest holding in terms of weight, represents 13.42% of Pennant Investors’ equity portfolio. As of quarter-end, the firm owns 77,000 shares, down 24.51% from the prior quarter. Shares averaged $374.51 during the second quarter.
The Stamford, Connecticut-based company provides television, internet and telephone services to over 26 million subscribers across 41 states under the Spectrum brand. GuruFocus ranks the company’s financial strength 3.3 out of 10 on several warning signs, which include a weak Altman Z-score of 0.92, interest coverage below Graham’s safe threshold of five and a debt-to-equity ratio that underperforms 82.82% of global competitors. Despite this, Charter has a solid Piotroski F-score of 6 out of 9.
TransDigm
TransDigm, the firm’s second-largest holding, represents 10.78% of the equity portfolio. Pennant Investors owns 50,500 shares as of quarter-end, up 19.39% from the prior quarter. Shares averaged $467.52 during the second quarter.
The Cleveland-based company manufactures products for electronic, fluid, power and mechanical motion control onboard commercial and military aircraft and helicopters. GuruFocus ranks TransDigm’s profitability 8 out of 10 on several positive signs, which include a five-star business predictability rank and operating margins that have increased approximately 2.2% per year on average over the past five years and are outperforming 93.71% of global competitors. Despite this, TransDigm’s financial strength ranks a poor 3.3 out of 10 on the heels of weak interest coverage and an Altman Z-score that suggests possible financial distress.
Blackstone
Blackstone, the firm’s third-largest holding, occupies 8.62% of the equity portfolio. Pennant Investors owns 440,000 shares as of quarter-end, down 16.19% from the prior quarter. Shares averaged $39.87 during the second quarter.
The New York-based alternative asset management company invests in private equity, real estate, hedge fund solutions, non-investment-grade credit and secondary funds. According to GuruFocus data, Blackstone’s cash-to-debt and equity-to-asset ratios underperform over 87% of global competitors, suggesting poor financial strength.
Antero
Antero, the firm’s fourth-largest holding, represents 8.09% of the equity portfolio. Pennant Investors owns 1.6 million shares, up 2.91% from the prior quarter. Shares averaged $12.82 during the second quarter.
A growth-oriented midstream energy company, Denver-based Antero owns, operates and develops pipelines and compressor stations that collect and process production in the company’s wells in the Marcellus and Utica Shale regions. According to GuruFocus, Antero has a solid Piotroski F-score of 7 despite a poor Altman Z-score of 1 and interest coverage of 2.89.
Disclosure: No positions.
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