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Highbridge Capital Management 3Q 2013

Highbridge Capital Management 3Q 2013 (Part 1 of 7)

Why did Highbridge Capital open position in Lowe’s Cos?

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Highbridge Capital Management, LLC is a multi-strategy alternative investment management firm founded by Glenn Russell Dubin and Henry Swieca in 1992. In late 2004, J.P. Morgan Asset Management purchased a majority interest in Highbridge, creating one of the first and most significant strategic alliances in the hedge fund industry. In July 2009, J.P. Morgan Asset Management completed its purchase of substantially all remaining shares of the firm. Highbridge and its affiliates manage approximately $29 billion in capital for many of the world’s most prominent institutional investors, public and corporate pension funds, endowments, foundations, family offices and high net worth individuals. The firm is based in New York with offices in Hong Kong and London.

The fund bought new positions in Lowe’s Cos Inc (LOW), Schlumberger Ltd (SLB), Groupon Inc (GRPN), and Tempur Sealy International Inc (TPX) in 3Q 2013. It sold its positions in Cosan Ltd (CZZ), Cummins Inc (CMI), and Tractor Supply Company (TSCO).

Abbreviated financial summaries and metrics for these securities are included below. Detailed analysis and recommendations require a subscription (more information at the bottom of the article).

Why buy Lowe’s Cos (LOW)?
Lowe’s Cos is a 0.66% position in Highbridge’s portfolio.

Lowe’s Companies, the world’s second largest home improvement retailer, reported net earnings of $499 million for 3Q 2013, a 26.0% increase over the same period a year ago. Diluted EPS increased 34.3% to $0.47 from $0.35 in 3Q 2012. Sales for the quarter increased 7.3% to $13.0 billion from $12.1 billion in 3Q 2012, and comparable sales for the quarter increased 6.2%. It mainly attributed the increase to its improved collaboration and execution within a strengthening home improvement market, adding that the home improvement industry is poised for persisting growth in the fourth quarter and further acceleration in 2014.

The company repurchased $761 million of stock and paid $191 million in dividends in the quarter.

It raised its fiscal 2013 outlook and stated total sales are expected to increase approximately 6%. Comparable sales are expected to increase approximately 5%. Diluted earnings per share of approximately $2.15 is expected for the fiscal year ending January 31, 2014.

Despite the positive outlook, it missed analyst estimates on earnings and continues to lag behind main rival Home Depot (HD), which reported strong results. Both companies benefitted from the recovery in the domestic housing market. According to a recent report from the National Association of Realtors, existing-home sales fell in November, although median prices continue to show strong year-over-year growth. The report said home sales were impacted by higher mortgage interest rates, constrained inventory and continuing tight credit. Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, dropped 4.3% to a seasonally adjusted annual rate of 4.90 million in November from 5.12 million in October. Any setbacks in the housing recovery market will affect the earnings of home improvement retailers such as Lowe’s and Home Depot.

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The fund started in 1992 with $35 million in capital and is named after the 19th century aqueduct that connects Washington Heights and the Bronx. It seeks to attain consistent capital appreciation primarily through arbitrage and absolute return investment strategies in the global financial markets.  The firm has evolved over the past nineteen years and developed a diversified multi-strategy investment platform comprising more than six distinct investment strategies which serve as “alpha engines”.  Some of Highbridge’s core absolute return investment strategies include Convertible Bond Arbitrage, Credit, Global Macro, Long/Short Equity and Statistical Arbitrage.

Founder Glenn Russell Dubin was born in 1957 in the Washington Heights section of upper Manhattan. He graduated in 1978 with a degree in economics from Stony Brook University and began his career in finance as a retail stock broker at E. F. Hutton & Co. in 1978.  In 2010, Dubin was instrumental in broadening the Highbridge investment platform by partnering with J.P. Morgan Asset Management to lead the acquisition of a majority interest in Gávea Investimentos, one of Brazil’s most prominent alternative investment managers. Dubin stepped down from the CEO position at Highbridge in July 2013 and continues to remain as the chairman at the firm.

The Realist Discussions

  • Jake Garcia

    Dumb move selling TSCO. No reason given in statement