Paulson Grows Bullish on American Capital $ACAS

On December 22, 2011, John Paulson reduced his stake in American Capital, Ltd (ACAS) by 6.15%, bringing his total shares in the company to just under 32.85 million. The decrease is only Paulson’s latest with regard to ACAS.

John Paulson’s Paulson & Co. had initiated a 43,725,000 share position in the company in the second quarter of 2010, when the average share price in ACAS was $5.47. In the third quarter, when ACAS’s average share price was $8.84 a share, Paulson unloaded 4,914,141 shares in the company. The sale brought his total shares to 38,810,859 at the end of September. PAULSON & CO

Since then, Paulson has been selling off shares in ACAS periodically. He sold more than 10% of his stake in the company on October 4, 2011, then by just over 3%the next day, which brought his shares in ACAS down to 36,279,900. Paulson held that position until October 11, when he sold another 3.53% of his position to bring his total holding in the company to 35,000,000 shares. Now, he is cutting his stake in ACAS once again. Paulson sold off 6.15% of his stake in the company on December 22, bringing his position to 32,846,800 shares (see the complete SEC filing here). The average sale price was $7.15-$7.16 a share.

ACAS  opened trading today at $7.01 a share. It is currently priced at 3.37 times its earnings. Analysts predict give the stock a one-year target estimate of $10-11, and recommend the stock as a sell, rating it 2.2 on a scale in which 1.0 means strong buy and 5.0 means sell. Analysts also predict the company’s earnings will outperform its industry over the next five years, growing by 15% per annum compared to industry expectations of 12.06% per annum. It doesn’t sound bad, but scratch the surface. ACAS’s third quarter net income was $464 million in the red, compared to $410 million at the end of the second quarter.