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Longleaf Partners Fund’s Opinion on Park Hotels & Resorts and Mattel

Longleaf Partners Fund, a Memphis-based fund under Southeastern Asset Management, recently released its Q1 2020 Investor Letter – a copy of which can be downloaded here. Southeastern Asset Management was founded in 1975 by Mason Hawkins. Longleaf Partners Fund returned -28.87% in Q1 2020, while the S&P 500 returned -19.60%.

In the said letter, Mason Hawkins highlighted a few stocks and Park Hotels & Resorts Inc. (NYSE:PK) is one of them. Park Hotels & Resorts is a multinational hospitality company. Year-to-date, PK stock lost 71.3% and on April 22nd it had a closing price of $7.22. Its market cap is of $1.78 billion, and PK is trading at a price-to-earnings ratio of 5.16x. Here is what Mason Hawkins said:

“Park Hotels and Resorts (-68%, -2.82%), was another top detractor. Park saw its occupancy levels hit unprecedented lows due to travel reduction and conference cancellations as a result of COVID-19. Park responded by closing all or parts of the majority of its owned hotels. We have evaluated the company’s debt (the next maturity is $700 million at the end of 2021) and liquidity (about $1.4 billion) and believe it will survive the crisis. CEO Tom Baltimore purchased shares personally after the stock’s sharp decline but still well above where it trades. The stock was deeply discounted at quarter end, but our appraisal of the value has declined with the loss of cash-flow. As we said above, it is in the third bucket, and we did not add during the quarter. Park trades at an extremely wide discount to both relatively stable replacement cost (it trades at less than 20% of that metric) and a fast moving value, providing a large margin of safety at today’s low price.”

In Q4 2019, the number of bullish hedge fund positions on PK stock decreased by about 38% from the previous quarter (see the chart here).

Longleaf Partners Fund’s comments on Mattel

In the said letter, Mason Hawkins also highlighted Mattel Inc (NASDAQ:MAT) stock. Mattel is a multinational toy manufacturing and entertainment company. Here is what Mason Hawkins said:

“Classic toy company Mattel (-35%, -2.20%), was also a detractor. In the fourth quarter of 2019 Mattel revenues fell 3%, but, more importantly, margins increased and CEO Ynon Kreiz announced new strategic plans to continue growing profits and monetizing intellectual property. The Dolls business (primarily Barbie) grew 3% in the face of tough Frozen 2 competition, Vehicles (Hot Wheels) grew 8%, and other brands continued stabilizing, while American Girl was more challenged in the period as it continued to shrink double digits. Mattel reported positive earnings in 2019 for the first time since 2016, and we expect much higher cash earnings in the years ahead despite the sharp COVID-19 retail disruption, as Mattel sells through a variety of channels, including online. Leading toy brands have historically been resilient during tougher economic times (Mattel 2009 cash flow was roughly similar to 2007 levels, and overall toy industry sales were only down 1% from ’08 to ’09). Mattel’s intellectual property is seeing a significant uptick in demand from children and streaming platforms today.”

In Q4 2019, the number of bullish hedge fund positions on MAT stock decreased by about 21% from the previous quarter (see the chart here).

Disclosure: None. This article is originally published at Insider Monkey.

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