The first thing that pops up in my mind whenever I read about Lombardia Capital Partners is that it is a successful 100% employee-owned investment firm. The firm mostly capitalizes on stocks that are undervalued because of the speculative investors. It maintains a well diversified portfolio with a focus on Financial and Service sector stocks, which represent ~50% of the firm’s assets. Analyzing the decline in its positions in the last 13F filings, I came up with three interesting stocks. The firm liquidated its holdings in Coach, Inc. (NYSE:COH), Metlife Inc (NYSE:MET) and Duke Energy Corp (NYSE:DUK). I feel that decreasing its holding in Coach was a wise step by Lombardia, but both MetLife and Duke could have provided long term growth in the future, and the firm should have increased its position instead. Let's discuss each of them in detail.
|Duke Energy Corporation||6.00%|
The stock price of Coach trembled down by ~15% since it declared its 2Q13 results. Despite the holiday season, the company's North American Region sales (which contributes ~72% to the total revenue) had a negative same-store-sales (SSS) growth of ~2% Y/Y. North American sales were affected by intensified competition, heavy discounting, and Hurricane Sandy. On the other side, weakness in the Japanese Yen also caused a decline in the sales revenue from the region, and even more headwinds are expected in the currency throughout FY13. These factors dragged down the overall sales growth to just 3.8% Y/Y. Additionally, I am not optimistic about the company's guidance for revenue in the second half of FY13.
It will be quite difficult for the company to either achieve a high single digit sales growth rate or a ~10% square footage growth in the second half of 2013 considering the flat comp rate for North America.
Coach is increasingly losing customers to its competitors; for instance, for the first time it lost its share in the women's handbag segment, where a ~10% growth was expected. Looking at the brighter side, Coach expects to open 65 new stores next year, and 30 of them are planned for mainland China. Coach's Chinese region performance showed a ~40% growth in sales, and the company expects to achieve total revenue of ~$400 million in FY13. However, I feel that this won't be enough to pull up the stock in the short term. The stock is a Sell for me.
Recently MetLife sold its deposit business to GE Capital. As a result it transferred $6.4 billion in bank deposits to GE Capital. The sale shows the increasing focus of MetLife on its core business, i.e., insurance and employee benefits. This deal also allowed the company to initiate the de-registration process, and the company is about to exit from the regulations applicable on a bank holding company. This is a very critical move for the company, seeing as it failed the stress test last year. The Federal Reserve restricted it from declaring any dividend or conducting any share buyback. The company declared in its guidance that a long term Return on Equity of ~12% is expected from its business. However, it should be noted here that it still holds the position of a Non-Bank SIFI, and some Federal regulations do apply on the company. Hence, the company can repurchase on a single day up to 25% of the four-week average volume of shares traded in the market. Considering the current price, it is expected that the company can repurchase ~2.6 million shares in the next quarter worth ~$2 billion.