Jeff Ubben's ValueAct Buys 1, Sells 2 in 1st Quarter

- By Sydnee Gatewood

Jeff Ubben (Trades, Portfolio)'s ValueAct Holdings disclosed in its first-quarter portfolio, which was released earlier this month, that it established one new position and divested of two others.

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• PCG 15-Year Financial Data
• The intrinsic value of PCG
• Peter Lynch Chart of PCG

Known for its activist nature, the San Francisco-based firm usually takes large positions in a concentrated number of undervalued companies. It then works with management to maximize returns and unlock value for shareholders. Ubben stepped down as chief investment officer in July 2017, handing the reins to his protege, Mason Morfit. He remains at the firm as CEO.

Based on these criteria, ValueAct opened a position in PG&E Corp. (PCG) during the quarter and closed its Aramark (ARMK) and Bloom Energy Corp. (BE) holdings, which it had just entered the previous quarter.

PG&E

The firm invested in 1 million shares of PG&E, allocating 0.20% of the equity portfolio to the stake. The stock traded for an average price of $16.19 per share during the quarter.

The San Francisco-based utility company, which has recently been beaten down for its alleged involvement in causing a string of California wildfires in 2017 and 2018, has a $9.38 billion market cap; its shares were trading around $17.36 on Wednesday with a forward price-earnings ratio of 4.99, a price-book ratio of 0.74 and a price-sales ratio of 0.55.

The median price-sales chart shows the stock is trading below its historical average, suggesting it is undervalued.

GuruFocus rated PG&E's financial strength 6 out of 10. As a result of issuing approximately $4.8 billion in new long-term debt over the last three years, the company has poor interest coverage. The Altman Z-Score of -0.02 also warns it is in danger of going bankrupt. In late January, the electricity company did file for bankruptcy protection as a result of the repercussions of its involvement in causing some of the wildfires in California.

The company's profitability and growth scored a 5 out of 10 rating. Although the operating margin is expanding, it still underperforms over 85% of competitors. PG&E is also weighed down by poor returns, but has a moderate Piotroski F-Score of 5, which indicates operations are stable. As a result of declining revenue per share over the last five years, the business predictability rank of one out of five stars is on watch. According to GuruFocus, companies with this rank typically see their stocks gain an average of 1.1% per year.

Of the 11 gurus invested in PG&E, David Abrams (Trades, Portfolio) has the largest stake with 4.72% of outstanding shares. Joel Greenblatt (Trades, Portfolio) also established a position during the quarter, while Seth Klarman (Trades, Portfolio) and David Tepper (Trades, Portfolio) added to their holdings.

Aramark

ValueAct sold all 229,230 shares of Aramark, impacting the equity portfolio by -0.12%. During the quarter, the stock traded for an average price of $31.01 per share. GuruFocus estimates the firm lost an estimated 13% on the investment since establishing it in the fourth quarter of 2018.

The food service company, which is headquartered in Philadelphia, has a market cap of $7.82 billion; its shares were trading around $31.73 on Wednesday with a price-earnings ratio of 15.27, a price-book ratio of 2.43 and a price-sales ratio of 0.49.

According to the Peter Lynch chart, the stock is trading near its fair value.

Aramark's financial strength and profitability and growth were both rated 5 out of 10 by GuruFocus. As a result of poor interest coverage and issuing approximately $1.7 billion in new long-term debt over the last three years, the Altman Z-Score of 1.99 suggests the company is under some fiscal pressure.