KapStone Paper and Packaging Corp. (NYSE:KS) hit its all-time high in the first quarter, during February. Since then, the stock has dropped more than 25% of its value. Meanwhile, Macquarie has downgraded KapStone Paper and Packaging Corp. (NYSE:KS) to a ‘Neutral’ rating from ‘Outperform’ today, and reduced its price target to $26 from its previous $31. The new price target was actually beneath where shares of the company were trading at Friday’s close, though they have since fallen under it, sliding by 5.5% today on the downgrade. Macquire not only downgraded KapStone, but all other container board stocks as well, citing price cuts on West Coast container board as the reason behind its downgrades on those stocks. What do hedge funds feel about this stock and should worried investors get out now or hold on to or even expand their positions in the wake of the dip? Let’s dig into the numbers to find the answers.
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Quarterly hedge fund position changes in any stock give us a good indication of the sentiment and potential performance of a stock short-term in one easy-to-digest metric. For KapStone Paper and Packaging Corp. (NYSE:KS), the number of hedge funds in our database with positions in the stock went down to 30 by the end of first quarter from 40 at the end of 2014. This shows a strong negative sentiment for the stock. The aggregate invested capital among funds also decreased to $443.6 million at the end of the first quarter from $511.8 million at the end of the previous quarter. This is approximately a 13% reduction in the aggregate capital investment in the stock by hedge funds, despite shares of the company actually rising by more than 10% during the first quarter. All things being equal, aggregate investment should’ve also risen by more than 10% along with the value of shares, so a 13% reduction shows severe bearishness on the part of hedge funds heading into what has been a disastrous second quarter.
Insider action on the stock gives us another valuable perspective of sentiment about the company and its potential performance. For KapStone Paper and Packaging Corp. (NYSE:KS), there was one insider purchase in the second quarter as Vice President and General Manager, Randy Nebel purchased 1,000 shares in May. There were a few insider sales filed in the first and second quarters as well, with Vice President of Sales and Marketing at KapStone, Antionette Meyers selling around 4,500 shares in the first quarter and KapStone Chairman and CEO Roger Stone selling about 100,000 shares earlier this month. KapStone CFO Andrea Tarbox sold around 20,000 shares earlier this month as well. While we generally look at any insider purchase as overruling insider sales, it’s hard to ignore the large sales made recently by the very upper management of the company.
Keeping this in mind, let’s take a look at the fresh hedge fund action on KapStone Paper and Packaging Corp. (NYSE:KS).