Two Deep-in-Debt Companies That Insiders Are Buying

The debt-to-equity ratio is a leverage correlation that compares a company’s total liabilities with its total shareholders’ equity. This is a measurement of how much suppliers, lenders, creditors and obligators have committed to the company, versus what shareholders have contributed. A high debt-to-equity ratio can result in a company reporting volatile earnings, and in the inability of generating enough cash to satisfy its debt obligations.

Ignoring the risks that a high debt-to-equity ratio implies, insiders at Charter Communications, Inc. (NASDAQ:CHTR) and Pitney Bowes Inc. (NYSE:PBI) have been buying the companies’ stocks. So, let’s take a look at the transactions:

Charter Communications, Inc. (NASDAQ:CHTR) is a $14.9 billion market cap provider of cable services that displays troubled fundamentals. Negative returns and razor thin margins coupled with a not-so-attractive valuation make of this stock an unappealing one. Even further, a debt-to-equity ratio of 110.9x is more than 40 times the industry average.

Nonetheless, over the past few days (May 5 to May 7), Liberty Media Corp, a Large Shareholder (considered insider for owning more than 10% of the firm’s stock), acquired 896,845 shares of Class A common stock, for prices ranging from $136.94 per share to $139.78 per share, inclusive. The group now owns more than 27.75 million shares of the company, worth more than $3.8 billion.

Charter Communications, Inc.

In addition, more than 70 major hedge funds hold long stakes in the stock. The largest hedge fund shareholder, John H. Scully’s SPO Advisory Corp, holds more than 6.23 million shares, which account for more than 11% of its total equity portfolio. Second in line is John Griffin’s Blue Ridge Capital, with 2.83 million shares, up by 29% on the quarter, as of the end of last year.

Pitney Bowes Inc. (NYSE:PBI) is a $5.3 billion market cap provider of mail processing equipment and integrated mail solutions. On May 7, Stewart Hutcheson, Board Director, purchased 5,000 shares of Common Stock for prices ranging from $26.015 to $26.016 per share, despite the company’s high debt level (the debt-to-equity ratio of 16.2x is 80 times higher than its peers’ average). He now holds 14,256 shares of the company.

On top of Mr. Hutchenson, more than 30 major hedge funds seem to feel bullish about this company. David Cohen and Harold Levy’s Iridian Asset Management, the largest hedge-fund shareholder slightly upped its stakes slightly over the last reported quarter (Q1 2014), to 7.877 million shares. Other prominent investors with stakes worth more than $100 million are Donald Chiboucis, Jean-Marie Eveillard and David E. Shaw.

 

Disclosure: Javier Hasse holds no position in any stocks mentioned

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