It appears that Ralph Whitworth may have been washing his hands of Magnum Hunter Resources Corp (NYSE:MHR) too soon. Just days after we reported that Whitworth’s Relational Investors had begun selling off some of its substantial stake in the company, shares of Magnum Hunter have soared this morning in pre-market trading following the announcement that it would seek to divest itself of its entire 45.5% stake in Eureka Hunter Holdings. The move also comes just days after Magnum Hunter announced the sale of Non-Core Undeveloped Leasehold Acreage in Tyler County, West Virginia through its wholly-owned subsidiary Triad Hunter. That deal was expected to fetch $33.6 million in cash, while the latest move is expected to pull in up to $700 million as Magnum Hunter works to improve its liquidity and restructure its ailing balance sheet; Magnum Hunter has a debt load of $951 million and just $13.7 million in cash and equivalents on hand as of March 31. Eureka Hunter Holdings operates the Eureka Hunter Pipeline, natural gas pipelines running between Ohio and West Virginia, as well as providing natural gas treatment plants for lease by third parties in Texas and other states through its own subsidiary TransTex Hunter.
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Despite the earlier sale, the 15% spike in shares of Magnum Hunter Resources Corp (NYSE:MHR) this morning is still a coup for Whitworth, who still held 20.73 million shares after the recent sale of over 9 million shares in June, though shares are still down by 36% year-to-date. At the time of Whitworth’s sale, Magnum Hunter was coming off a stretch from the middle of April through the middle of June where its stock had cratered by 57%, sliding from $2.82 to $1.21 in the span of two months. The sale of its Eureka Hunter stake coupled with the fact that Magnum Hunter still stands at a low valuation compared to just two months ago raises the question of whether or not it can be considered a good buy now. Let’s take a look at the activity surrounding the stock to try and find the answer.
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Tracking the activity of insiders and hedge funds in a stock is a powerful tool that provides the collective insight of the top money managers and insiders in the world. Magnum Hunter Resources Corp (NYSE:MHR) was in 10 hedge funds’ portfolios at the end of March out of the funds we track. The stock experienced a decrease in hedge fund sentiment in recent months, as there were 15 hedge funds in our database with holdings in the company at the end of 2014. The aggregate capital of the funds also declined substantially, to $121 million from $193 million, a substantial sell-off, even factoring in the 15% depreciation in the company’s shares during the first quarter.
In terms of insider activity, aside from Whitworth’s own sales as a large shareholder, we see a few other purchases and sales by insiders in the first quarter. Director Victor Carrillo purchased over 8,000 shares in the first quarter, while EVP Hershal Ferguson sold 101,000 shares during the quarter.
With all of this in mind, let’s take a look at the recent hedge fund action regarding Magnum Hunter Resources Corp (NYSE:MHR).
What does the smart money think about Magnum Hunter Resources Corp (NYSE:MHR)?
At the end of the first quarter, a total of 10 of the hedge funds tracked by Insider Monkey were long in this stock, a drop of 33% from the previous quarter. With hedge funds’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their holdings meaningfully.
According to hedge fund experts at Insider Monkey, the aforementioned Ralph V. Whitworth had the largest position in Magnum Hunter Resources Corp (NYSE:MHR), worth close to $80.7 million, comprising 3.4% of his total 13F portfolio. The second-most bullish hedge fund manager was Todd J. Kantor of Encompass Capital Advisors, with a $14.3 million position; the fund had 3.3% of its 13F portfolio invested in the stock. Other members of the smart money that were bullish included Gregory Fraser, Rudolph Kluiber, and Timothy Krochuk’s GRT Capital Partners, Robert Henry Lynch’s Aristeia Capital, and Robert Vollero and Gentry T. Beach‘s Vollero Beach Capital Partners.
While the gains today are nice, given the largely negative sentiment among funds, particularly of its largest shareholder who had previously left his position untouched for several quarters, it’s hard to get too excited about the rally. It will certainly give the company more stability and flexibility as it struggles to wait out depressed commodity prices, but there are still plenty of operational concerns and headwinds facing it. We don’t recommend a buy of this stock at his time.
Disclosure: None
