Billionaire David Abrams founded Abrams Capital Management, a Boston, Massachusetts-based, value-focused hedge fund, in 1999. Prior to founding Abrams Capital, Mr. Abrams worked at Seth Klarman’s Baupost Group for ten years. From its inception in 1999 through 2014, the main funds operated by Abrams Capital have had an annualized return of 15%. Although it operates a sizable public equity portfolio, the majority of Abrams Capital’s funds are allocated towards investments in fixed income securities. The fund is well known on the Street for using no leverage and holding a large percentage of its assets under management in cash for a long time until it finds a suitable investment opportunity. Abrams Capital recently filed its 13F for the reporting period of June 30, revealing an equity portfolio worth over $1.47 billion. The fund had a highly concentrated portfolio at the end of June, with positions in just 12 stocks and more than half of the value of its equity portfolio invested in stocks from the information technology sector. In this article we are going to dissect the four largest small-cap holdings of Abrams Capital, which jointly accounted for over 22% of the value of its equity portfolio, with those stocks being Barnes & Noble, Inc. (NYSE:BKS), Opus Bank (NASDAQ:OPB), InterXion Holding NV (NYSE:INXN), and Wendys Co (NASDAQ:WEN).
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Coming back to Abrams Capital’s top small-cap picks, even though the fund increased its stake in Barnes & Noble, Inc. (NYSE:BKS) by 24% during the second quarter, it continued to remain the fund’s fifth-largest holding at the end of June. The company completed the separation of its college bookstores subsidiary Barnes & Noble Education Inc (NYSE:BNED) on August 3. Analysts expect Barnes & Noble, Inc. (NYSE:BKS) to report EPS of $0.20 when it declares its first quarterly earnings report following the Barnes & Noble Education separation, on September 9. On July 27, analysts at Craig Hallum initiated coverage on the stock with a ‘Buy’ rating and a $25 price target, which represents a potential 60% upside to the stock’s current trading price. Edward A. Mule‘s Silver Point Capital initiated a large stake in the company by purchasing over 1.5 million shares of it during the second quarter.
Moving on, Abrams Capital made no changes to its stake in Opus Bank (NASDAQ:OPB) during the second quarter. As of June 30, the fund continued to own slightly above 2.27 million shares of the company valued at almost $82.14 million. Shares of the California-based commercial bank have been on a steady rise throughout 2015 and gained 17.4% in the second quarter alone. Opus Bank (NASDAQ:OPB) came out with stellar numbers for its second quarter on July 27. While the Street was expecting it to report EPS of $0.44 on revenue of $54.43 million, it reported EPS of $0.52 on revenue of $63.10 million. On August 4, analysts at Keefe, Bruyette & Woods reiterated their ‘Outperform’ rating on the stock, while upping their price target to $45 from $37 , which represents an over 25% upside to the current share price. David Abrams is not the only billionaire who owns a stake in Opus Bank (NASDAQ:OPB), as during the second quarter, billionaire Ken Griffin‘s Citadel Investment Group increased its stake in the company by 19% to 30,728 shares.
Just like Opus Bank (NASDAQ:OPB), Abrams Capital also didn’t made any changes to its stake in InterXion Holding NV (NYSE:INXN) during the second quarter. As of June 30, the fund continued to own over 2.34 million shares of the company worth almost $65 million. After a huge spike in early February following London-based TelecityGroup’s announcement that it would be acquiring InterXion Holding NV (NYSE:INXN) in a $2.2 billion deal, shares of the company have seen a consistent downtrend since May 29, when TelecityGroup announced that it was terminating the all-stock deal because it was getting acquired by Equinix Inc (NASDAQ:EQIX). On July 31, analysts at KeyBanc reiterated their ‘Overweight’ rating on InterXion Holding NV (NYSE:INXN) and upped their price target to $323 from $295, which represents a 23.75% upside to the stock’s current price. Clint Carlson‘s Carlson Capital initiated a stake in InterXion Holding NV (NYSE:INXN) during the second quarter by purchasing 492,153 shares of the company.
Wendys Co (NASDAQ:WEN) represented Abrams Capital’s fourth-largest small-cap holding on June 30. The fund added Wendys Co (NASDAQ:WEN) to its portfolio during the second quarter, purchasing 4.25 million shares, which were valued at almost $48 million as of June 30. After spiking by over 20% during the first two months of the year and remaining range-bound throughout the second quarter, shares of the restaurant chain have nosedived and are trading flat for the year. On July 27 it was reported that the company is testing antibiotics-free chicken products. Wendys Co (NASDAQ:WEN) reported slight beats with its second quarter earnings announced on August 5. EPS for the quarter came in at $0.09 on revenue of $489.5 million, compared to analysts’ estimates of EPS of $0.08 on revenue of $488.69 million. Analysts at Credit Suisse upgraded the stock to ‘Neutral’ from ‘Underperform’ on August 11, but kept their price target at $10, representing potential upside of over 10%. Even after reducing its stake in the company by 17%, Nelson Peltz‘s Trian Partners remained Wendys Co (NASDAQ:WEN) largest shareholder at the end of June among the hedge funds we cover. As of June 30, the fund owned slightly over 54 million shares of the company.
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