Eye Of The Lion: LionEye Keeps Buying Sinking Shares Of This Restaurant

The slumping stock price of its restaurant picks has had little effect on Stephen V. Raneri‘s LionEye Capital Management. The fund keeps on increasing its exposure to one such holding, Famous Dave’s of America, Inc. (NASDAQ:DAVE). According to a recent 13D filing with the SEC, LionEye acquired another 138,164 shares of the $142.94 million operator of the barbecued and grilled meats restaurants, through its affiliated funds, taking its total stake to 1.04 million shares valued at $21.24 million according to the stock’s closing price on Friday. The holding represents almost 15% of the company’s outstanding shares.

New York-based hedge fund LionEye Capital Management was co-founded by Raneri along with Arthur J. Rosen to profit from an event-driven strategy, which involves investing in companies undergoing changes in management or business models. At the end of March, the market value of LionEye’s public equity portfolio stood at $2.49 billion, with the finance sector representing 49% of the holdings. Besides Famous Dave’s of America, Inc. (NASDAQ:DAVE), the other prominent food-related stock in the company’s portfolio is Darling Ingredients Inc (NYSE:DAR).

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LionEye initiated a position in Famous Dave’s of America, Inc. (NASDAQ:DAVE) during the second quarter of 2014 and this is the second hike in its stake since the fund’s 13F filing for the end of March. So far this year the company’s stock has slid by more than 22%, while the restaurant industry has appreciated by more than 12%.

The company is undergoing quite a few changes that make it an attractive pick for an event-driven investment strategy. Famous Dave’s of America, Inc. (NASDAQ:DAVE)’s CEO Ed Rensi recently resigned and board member Adam Wright has temporarily taken his position while the search for a replacement is on. More important is the change in the company’s business model, which involves a shift towards a more franchise-based business. At the end of March, Famous Dave’s of America, Inc. (NASDAQ:DAVE) had 50 company-owned restaurants, while 134 were franchise-operated ones. The company’s management believes that 90% or more of its stores should be franchised.

The changes going on at Famous Dave’s of America, Inc. (NASDAQ:DAVE) have sparked the attention of smart money as well. The number of hedge funds among those that we track with a stake in the company increased to ten at the end of March from seven at the end of the previous quarter. Jonathan Lennon‘s Pleasant Lake Partners is the largest stockholder of Famous Dave’s of America, Inc. (NASDAQ:DAVE) among these, holding some 923,400 shares valued at $26.32 million.

LionEye initiated a position in its other food-related pick, Darling Ingredients Inc (NYSE:DAR), during the first quarter, adding 679,500 shares valued at $9.52 million. The $2.47 billion company hasn’t performed much better than its smaller counterpart. Its stock has depreciated by almost 18% year-to-date.

Although Darling Ingredients Inc (NYSE:DAR)’s finnacial results for the first quarter were more towards the disappointing side, the outlook for the second quarter is promising. As part of its restructuring effort the company is continuing to shutter plants that are weighing down its bottom line and also instituting changes in other segments, such as restaurant services, to make them more efficient. For restaurant services, Darling Ingredients Inc (NYSE:DAR) lowered raw material payments to suppliers and also decreased its workforce during the first trimester.

LionEye isn’t the only fund that endorsed Darling Ingredients Inc (NYSE:DAR) during the first quarter. The hedge fund interest in the company increased significantly during the first three months as 34 firms had invested a total of $631.70 million into the company as compared to 29 funds with $867.56 million at the end of the previous quarter (the large dip in overall capital invested can largely be explained by the shares’ poor performance during the quarter, as they lost over 21% of their value). Frank Brosens‘ Taconic Capital also initiated a position in Darling Ingredients Inc (NYSE:DAR) during the trimester, consisting of 1.3 million shares valued at $18.21 million.

Disclosure: None