Greenlight Capital, an investment management company, released its first-quarter 2023 investor letter. A copy of the same can be downloaded here. The fund returned (1.3%), net of fees and expenses, in the first quarter compared to a 7.5% return for the S&P 500 Index. Furthermore, the longs gained 9.9%, while its shorts lost 10.8% and macro lost 0.4%, net of fees and expenses during the quarter. In addition, please check the fund’s top five holdings to know its best picks in 2023.
Greenlight Capital highlighted stocks like Kyndryl Holdings, Inc. (NYSE:KD) in the first quarter 2023 investor letter. Headquartered in New York, New York, Kyndryl Holdings, Inc. (NYSE:KD) is a technology services company. On May 02, 2023, Kyndryl Holdings, Inc. (NYSE:KD) stock closed at $14.16 per share. One-month return of Kyndryl Holdings, Inc. (NYSE:KD) was -3.28%, and its shares gained 21.44% of their value over the last 52 weeks. Kyndryl Holdings, Inc. (NYSE:KD) has a market capitalization of $3.221 billion.
Greenlight Capital made the following comment about Kyndryl Holdings, Inc. (NYSE:KD) in its Q1 2023 investor letter:
“Our second biggest winner was Kyndryl Holdings, Inc. (NYSE:KD). KD is an IT services provider that was spun off from IBM in late 2021. Though we began acquiring our stake around that time, we haven’t previously discussed this investment as we were patiently building the position. This proved to be a prudent approach, as the stock fell from $18.10 to $11.12 per share in 2022. So far in 2023, the shares have rebounded to $14.76. Over our 12-month buying period, the Partnerships acquired their shares at an average price of $11.37.
KD is a “bad business” spin-off. Prior to the spin, IBM often positioned its services unit as a loss leader in order to sell more hardware. These service contracts last for several years and, in aggregate, KD has no pre-tax income. Yet the turnaround strategy is straightforward. By no longer being part of IBM, KD can now offer solutions from multiple vendors and, as contracts expire, it is better positioned to raise both pricing and margins. About 60% of KD’s contracts earn greater than a 20% gross margin, while the other 40% are about breakeven. We believe that many of the no margin customers will accept higher prices. Our field work has made us believers in KD’s excellent reputation, while concluding that there aren’t any competitors willing to work for free. That said, it will take several years to work through the pre-spin backlog of no margin contracts, and it is inevitable that there will be some customer churn, which will make KD an unexciting story from a revenue growth perspective in the near term.
With an enterprise value of $4.5 billion and $17 billion of revenues, KD trades for less than 0.3x sales. Meanwhile, all of its peers trade for at least twice that multiple. We expect the shares to rerate over time as KD closes the margin gap with its peers.”
Hand touching brain of AI, Symbolic, Machine learning, artificial intelligence of futuristic technology. AI network of brain on business analysis, innovative and business growth development.
Kyndryl Holdings, Inc. (NYSE:KD) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 28 hedge fund portfolios held Kyndryl Holdings, Inc. (NYSE:KD) at the end of the fourth quarter which was 29 in the previous quarter.
We discussed Kyndryl Holdings, Inc. (NYSE:KD) in another article and shared the list of stocks to buy according to David Einhorn’s Greenlight Capital. In addition, please check out our hedge fund investor letters Q1 2023 page for more investor letters from hedge funds and other leading investors.
Suggested Articles:
- List of Homebuilder Stocks Sorted By Hedge Fund Sentiment
- Analysts Are Increasing Price Targets of These 10 Stocks
- 12 Best Staffing Company Stocks To Buy Now
Disclosure: None. This article is originally published at Insider Monkey.
