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Greenlight Capital starts new positions in 3Q 2013

Part 5
Greenlight Capital starts new positions in 3Q 2013 (Part 5 of 7)

Set to soar? Einhorn raises Greenlight’s Spirit Aerosystems stake

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Greenlight Capital is a hedge fund founded by David Einhorn and former co-President Jeffrey A. Keswin. Greenlight invests primarily in publicly traded North American corporate debt offerings and equities. Founded in 1996, the $5.6 billion Greenlight Capital also manages a fund of funds and a private equity fund through its affiliates, Greenlight Masters and Greenlight Private Equity Partners. It also operates Greenlight Capital Re, a property and casualty reinsurer.

In this seven-part series, we’ll go through some of the main positions Greenlight Capital LP traded this past quarter.

The fund bought new positions in Intrexon Corp. (XON) and Tempur Sealy International (TPX) in 3Q 2013. It added to its positions in WPX Energy Inc. (WPX), Oil States International Inc. (OIS), and Spirit Aerosystems (SPR). It sold its positions in Oaktree Capital Group LLC (OAK) and State Bank Financial Corp. (STBZ).

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 Spirit Aerosystems (SPR)?

Einhorn increased Greenlight Capital’s position in Spirit Aerosystems to 1.2% in 3Q 2013. Spirit Aerosystems’ 3Q 2013 results reflected continued strong demand for large commercial aircraft, solid mature program operating performance, and the impact of new program charges. Its revenues were $1.504 billion—up 10% from $1.365 billion for the same period of 2012, driven by higher production volumes. Net income for the quarter was $94 million, or $0.65 per fully diluted share, compared to a net loss of $134 million, or $0.94 per fully diluted share, in the same period of 2012.

Higher production volumes drove revenue increases at all its segments. Fuselage Systems segment revenues were $710 million, up 8% from the same period last year. Propulsion Systems segment revenues were $389 million, up 9% from the same period last year. Wing Systems segment revenues were $398 million, up 15% from the same period last year.

The company recently announced its intention to conclude its joint venture with the Progresstech Group of Companies of Moscow that began in 2007. Spirit intends to sell its 50% interest in Spirit-Progresstech LLC to a member company of Progresstech. It said its decision to sell its share in the joint venture is part of the previously announced strategic review intended to better align resources across the company to meet customer demands.

Shares of Spirit Aerosystems surged in November on the news of Boeing taking $100 billion in orders for its new 777 mini-jumbos at the Dubai Air Show. Spirit AeroSystems is the largest independent supplier of aerostructures to both Boeing and Airbus, and these contracts account for 95% of its revenue.

Despite the pre-tax charges incurred on the A350 XWB program, analysts are bullish about the stock on the back of solid results.

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Greenlight has generated about a 20% annualized return for investors. According to HedgeFundLetters.com, Greenlight Capital is a long/short value-oriented fund. The firm’s investment approach is to analyze the economic value of a company and determine the alignment of interest between management and investors. It employs a bottom-up approach, emphasizing fundamental analysis, aiming to achieve high absolute rates of return while minimizing the risk of capital loss.

David Einhorn graduated summa cum laude from Cornell University with a BA in Government from the College of Arts and Sciences in 1991. Einhorn is a major contributor and board member of The Michael J. Fox Foundation. He is also on the board of the Robin Hood Foundation and a contributor to numerous charities in the New York area. He has authored the book Fooling Some of the People All of the Time.

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