Engility Holdings Inc. (EGL) Had Two Top Executives Purchase Shares; EV Energy Partners L.P. (EVEP) and BancFirst Corporation (BANF) Witness Insider Buying

Much research concludes that corporate insiders’ security purchases tend to beat broader market benchmarks on aggregate, but also finds that companies with heavy insider selling usually underperform companies with insider buying. Of course, those studies are particularly interesting for investors monitoring insider trading behavior as part of their stock selection and analysis process. However, some studies also find that corporate insiders, especially top-tier executives, usually time their purchases around bad news related to their companies’ developments and prospects, buying fewer shares before negative news announcements and more shares after those news are getting priced in. This finding serves as yet another explanation as for why insider purchases tend to beat stock indexes. For that reason, this insider trading article will discuss the recent insider purchases registered at several little-known companies.

Academic research has shown that certain insider purchases historically outperformed the market by an average of seven percentage points per year. This effect is more pronounced in small-cap stocks. Another exception is the small-cap stock picks of hedge funds. Our research has shown that imitating the 15 most popular small-cap stocks among hedge funds outperformed the market by nearly a percentage point per month between 1999 and 2012 (read more details here).

Let’s kick off the so-called insider trading investigation by examining the insider buying at Engility Holdings Inc. (NYSE:EGL), which had its most powerful executives purchase shares in the past several weeks. To start with, freshly-appointed Chief Executive Officer, Lynn Dugle, purchased 5,554 shares on Monday for $18.38 each, after purchasing a new stake of 8,102 shares on Friday at prices that ranged from $18.12 to $18.30 per share. Ms. Dugle currently holds an ownership stake of 13,656 shares. Some companies require newly-appointed executives and Board members to own shares, so Ms. Dugle’s recent insider purchases may seem to be irrelevant to insider trading watchers. Moreover, President and Chief Operating Officer John P. Hynes snapped up 3,330 shares on March 21 at prices that fell between $18.03 and $18.08 per share, lifting his overall holding to 16,206 shares.

The shares of the provider of mission critical services to the U.S. government have plummeted 44% since the beginning of 2016, partly because the company issued disappointing guidance for fiscal 2016 in late January. The company’s management anticipates fiscal 2016 revenue in the range of $2.0 billion-to-$2.15 billion, notably below the $2.26 billion figure previously anticipated by analysts. At the same time, Engility Holdings Inc. (NYSE:EGL) said it anticipates adjusted EBITDA in the range of $180 million-to-$190 million.

The company provides a wide variety of services, including specialized technical consulting, engineering and technology lifecycle support, trading and education, among other things to the U.S. government personnel. The company’s revenue for 2015 reached $2.09 billion, up $719 million or 52.6% year-on-year. The massive increase was mainly driven by the acquisition of services provider to the national security and public safety markets, called TASC, in February 2015. Legacy Engility business revenue decreased $188 million year-on-year, mainly due to a decrease in U.S. Department of Defense (DoD)-related revenues of $203 million, which included a decline of $62 million related to the drawdown in Afghanistan. Shares of Engility are priced around 12.9-times expected earnings, below the forward P/E ratio of 17.5 for the companies included in the S&P 500 Index. There were 12 hedge funds monitored by Insider Monkey with stakes in the government services contractor, which amassed nearly 3% of the company’s outstanding shares. David Brown’s Hawk Ridge Management owned 203,377 shares of Engility Holdings Inc. (NYSE:EGL) at the end of December.

The next two pages of this insider trading article discusses the insider buying witnessed at EV Energy Partners L.P. (NASDAQ:EVEP) and BancFirst Corporation (NASDAQ:BANF).

EV Energy Partners L.P. (NASDAQ:EVEP) also saw one of its top executives make a sizable purchase of securities this week. Nicholas P. Bobrowski, Vice President and Chief Financial Officer since March 2015, bought 10,000 units of common stock on Monday at prices varying from $1.91 to $1.92 per unit, which boosted his ownership to 15,199 units. EV Energy Partners is a publicly-held limited partnership that engages in the acquisition, development and production of oil and natural gas properties. The company’s oil and natural gas properties are located in the Barnett Shale, the Appalachian Basin, the San Juan Basin, Michigan, Central Texas, the Mid-Continent areas, as well as the Monroe Field and the Permian Basin.

EV Energy Partners’ total revenues for 2015 were $178.0 million, down from $339.4 million reported for 2014. Oil, natural gas and natural gas liquids revenues for 2015 declined $159.6 million year-on-year to $175.1 million. The decrease was mainly attributable to lower prices for oil, natural gas and natural gas liquids, as well as lower oil production as a result of the company’s reduced capital spending program. EV Energy Partners’ borrowing base at the end of 2015 was $625.0 million, with $265.0 million outstanding. However, the company’s senior secured credit facility was recently amended, which involved the decrease of the borrowing base from $625 million to $450 million. As a result, the company currently has more than $200 million of liquidity between its borrowing base capacity and cash on hand, which will be enough to meet short-term capital needs. EV Energy Partners had total debt of $691 million at the end of 2015, with estimated interest payments of $40.9 million during 2016. The company paid a distribution $1.575 per share in 2015, down from $2.819 in 2014 and $3.078 per share in 2013. Assuming EV Energy Partners maintains its current quarterly distribution of $0.075 per common unit, the dividend yield associated with a potential investment in the company reaches 16.39%. Shares of the company are down 87% in the past 12 months. Ken Griffin’s Citadel Advisors LLC owns 92,889 shares of EV Energy Partners L.P. (NASDAQ:EVEP) as of the end of the fourth quarter of 2015.

BancFirst Corporation (NASDAQ:BANF) is another company that had an influential insider make a relatively sizable purchase this week. H. E. Rainbolt, Chairman of the company’s Board of Directors, purchased 1,000 shares on Monday for $57.01 each, after offering 100 shares as a bona-fide gift on the same day. Following the recent transactions, Mr. Rainbolt holds a direct ownership stake of 1,053 shares. The Chairman also holds an indirect ownership stake of 56,249 shares, which is held through an employee stock ownership plan (ESOP). BancFirst Corporation is an Oklahoma business corporation and financial holding company that conducts its operating activities through BancFirst, an Oklahoma-based state-chartered bank.

The company’s net income for 2015 reached $66.2 million, or $4.17 per diluted share, which increased from $63.9 million, or $4.04 per diluted share, in 2014 and $54.3 million, or $3.49, in 2013. What’s more, BancFirst’s 2015 net interest income increased to $188.8 million from $181.4 million in 2014 and $163.5 million in 2013, mainly due to internal loan growth and acquired loans from acquisitions. It appears that the bank’s liquidity continues to be relatively high, considering that the company’s average loan-to-deposit ratio was 67.3% for 2015. Nonetheless, some may have the feeling that the bank’s liquidity has been worsening in recent years if bearing in mind that the loan-to-deposit ratio was 63.6% for 2014 and $62.7% for 2013. Moreover, the bank’s asset quality remained strong, though the share nonperforming and restructured assets of total assets increased to 0.83% at the end of 2015 from 0.64% at the end of the prior year. Shares of BancFirst are 4% in the red year-to-date and trade around 12.6-times expected earnings, versus the forward P/E of 11.2 for the Regional Banks sector. Israel Englander’s Millennium Management had 112,377 shares of BancFirst Corporation (NASDAQ:BANF) in its equity portfolio at the end of 2015.

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