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The Men’s Wearhouse Inc. (MW): SAB Capital Management Buys with a Bang

Brian Jackelow’s SAB Capital Management has initiated a huge stake in The Men’s Wearhouse, Inc. (NYSE:MW). SAB Capital Management’s filing with the Securities and Exchange Commission show that the company recently purchased over 2.45 million shares  or 5.1% of all common stock of The Men’s Wearhouse, Inc. (NYSE:MW) as a passive investor.

The Men's Wearhouse, Inc. (NYSE:MW)

SAB Capital Management is an event-driven long/short hedge fund. Currently the fund manages an equity portfolio of over $1.8 billion, with majority of its investments being in services followed by financial sector. SAB Capital’s largest equity holding is Hertz Global Holdings, Inc. (NYSE:HTZ), in which the fund increased its stake by 11% to over 8.45 million shares during the second quarter. In terms of performance, Hertz Global Holdings, Inc. (NYSE:HTZ) stock is down almost 15% year to date. However, the fund’s second largest equity holding, Micron Technology, Inc. (NASDAQ:MU), is up almost 47% year to date.

The Men’s Wearhouse, Inc. (NYSE:MW) is a $2.2 billion market cap, men’s clothing retail company. In the last three months, the company’s stock is down by almost 20%, which can be a reason why hedge funds are finding it lucrative. On September 16, the company announced Mary Beth Blake as the Company’s new President and Chief Merchandising Officer. For the second quarter of 2014, the company reported revenue of $803.1 million and EPS of $1.10 per share, compared to revenue of $647.3 million and EPS of $1.01 per share for the same period, last year. The company currently trades at 60.26 times its trailing earnings, while the average industry trailing P/E is 18.47.

Carl Tiedemann and Michael Tiedemann’s TIG Advisors and David Gallo’s Valinor Management LLC are also bullish on the stock. During the second quarter of 2014, TIG Advisors increased its stake in the company by 10% to 1.3 million shares, whereas Valinor Management Llc increased its stake by 15% to 1.27 million shares. Analysts and brokerages are also mostly bullish on the stock, as the consensus rating among them for the stock is ‘Buy’ with a price target of $64 or almost 40% above its current trading price. On October 9 ING Group downgraded the stock to a ‘Buy’. However, on the same day Jefferies Group initiated coverage on the stock with a ‘Buy’ rating and price target of $60.

Hedge funds initiating a stake in a company, is a sign that they are bullish, but a hedge fund initiating a stake by buying a huge chunk of the company and that too as a passive investor, definitely means that it is convinced that the stock is going to do really well in the coming days. If SAB Capital Management is taking a huge bet on this stock, right from the word go, might be it can see something in the company that the Street or regular investors haven’t priced yet.

Disclosure: None

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