Mason Hawkins’ Southeastern Sa – GuruFocus.com

Southeastern Asset Management recently disclosed its 13F portfolio updates for the first quarter of 2021, which ended on March 31.

Founded by
Mason Hawkins
(Trades, Portfolio) in 1975, the Memphis, Tennessee-based firm manages the Longleaf Partners Funds. The firm employs a fundamental, bottom-up appraisal process based on in-house research in order to select a concentrated portfolio of quality investments that have strong balance sheets, good management teams and attractive valuations.

Based on its 13F filing, the firm’s biggest sell for the quarter was Biogen Inc. (BIIB, Financial), while its sole new buy was Madison Square Garden Sports Corp. (MSGS, Financial). Other notable changes included additions to its investments in Mattel Inc. (MAT, Financial) and Douglas Emmett Inc. (DEI, Financial).

Biogen

The firm sold out of its 603,890-share holding in Biogen (BIIB, Financial), impacting the equity portfolio by -3.61%. During the quarter, shares traded for an average price of $301.69.

Biogen is a biotech company based in Cambridge, Massachusetts that primarily researches and develops therapies for neurological and neurodegenerative diseases, including multiple sclerosis, leukemia and Alzheimer’s.

On Aug. 19, shares of Biogen traded around $338.62 for a market cap of $50.47 billion. According to the GuruFocus Value chart, the stock is modestly overvalued.

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The company has a financial strength rating of 5 out of 10 and a profitability rating of 9 out of 10. The Altman Z-Score of 4.12 and Piotroski F-Score of 4 out of 9 show that the company is financially stable. The three-year revenue per share growth rate is 13.1%, while the three-year Ebitda per share growth rate is 5.4%.

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Madison Square Garden Sports

The firm established a new holding worth 771,602 shares in Madison Square Garden Sports (MSGS, Financial), which had a 2.68% impact on the equity portfolio. Shares traded for an average price of $180.83 during the quarter.

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Madison Square Garden Sports is the sports holding component of the Madison Square Garden Company. The New York-based company manages professional American sports teams, including the New York Knicks and the New York Rangers.

On Aug. 19, shares of Madison Square Garden Sports traded around $158.01 for a market cap of $3.81 billion. Since it spun off its entertainment division on April 20, 2020, the stock is down 13%.

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The company has a financial strength rating of 2 out of 10 and a profitability rating of 2 out of 10. The cash-debt ratio of 0.06 and Piotroski F-Score of 2 out of 9 imply poor business operations. Earnings have been under pressure since the company separated from its entertainment segment at the beginning of the Covid-19 pandemic, but both revenue per share and Ebitda per share have turned positive as of the most recent quarter.

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Mattel

The firm added 2,843,544 shares, or 17.61%, to its investment in Mattel (MAT, Financial) for a total holding of 18,990,844 shares. The trade had a 1.15% impact on the equity portfolio. During the quarter, shares traded for an average price of $20.64.

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Based in El Segundo, California, Mattel is an American multinational toy manufacturing company that produces popular brands such as Barbie, Hot Wheels, Fisher-Price and American Girl. It also produces toys for partner brands, including Ghostbusters and Hello Kitty.

On Aug. 19, shares of Mattel traded around $20.95 for a market cap of $7.31 billion. According to the GF Value chart, the stock is significantly overvalued.

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The company has a financial strength rating of 4 out of 10 and a profitability rating of 6 out of 10. The interest coverage ratio of 2.45 is on the low end of the spectrum, but the Piotroski F-Score of 8 out of 9 is typical of a very healthy financial situation. The return on invested capital has dropped below the weighted average cost of capital in recent years, meaning the company is spending more on its business investments than what it is earning back from them.

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Douglas Emmett

The firm also upped its stake in Douglas Emmett (DEI, Financial) by 1,373,785 shares, or 34.39%, for a total holding of 5,368,134 shares. The trade had a 0.93% impact on the equity portfolio. Shares traded for an average price of $33.86 during the quarter.

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Douglas Emmett is a real estate investment trust company with headquarters in Santa Monica, California. It owns and operates class-A office buildings and apartment communities in Southern California and Honolulu, Hawaii.

On Aug. 19, shares of Douglas Emmett traded around $31.96 for a market cap of $5.61 billion. According to the GF Value chart, the stock is fairly valued.

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The company has a financial strength rating of 3 out of 10 and a profitability rating of 6 out of 10. The interest coverage ratio of 1.1 and current ratio of 0.52 indicate the company will likely need to raise additional liquidity in order to avoid bankruptcy. The WACC is consistently higher than the ROIC, meaning the company is destroying value as it grows.

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Portfolio overview

As of the quarter’s end, Southeastern’s equity portfolio contained 24 common stock holdings valued at a total of $4.97 billion. The turnover for the quarter was 8%.

The top holdings at the quarter’s end were Lumen Technologies Inc. (LUMN, Financial) with 16.85% of the equity portfolio, CNX Resources Corp. (CNX, Financial) with 7.74% and Mattel with 7.67%. In terms of sector weighting, the firm was most invested in communication services, consumer cyclical and industrials.

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