Highlights From Greenlight Capital's Q4 Letter To Investors

David Einhorn’s Greenlight Capital issued its Q4 letter to investors Tuesday and disclosed new long positions in Time Warner Inc TWX, Citizens Financial Group Inc CFG, Keysight Technologies Inc KEYS and CIGNA Corporation CI.

A new short position was described in Cliffs Natural Resources Inc CLF.

The firm purchased a position in Time Warner "at an average price of $72.72, believing that management would have to respond forcefully to fend off another advance” and “believed that TWX had an opportunity to more aggressively monetize HBO and to reduce costs across the entire company.”

Time Warner’s management “subsequently announced that HBO would be offered as a stand-alone streaming product in the U.S., along with various other initiatives that have led to an increase in earnings estimates and a rally in the shares, which ended the year at $85.42.”

The firm thought Citizens Financial Group “is overcapitalized and currently generates a low ROE relative to peers,” however “it plans to improve its ROE over the next two years through a combination of loan and fee income growth, cost reductions, capital return and a partial normalization of interest rates.”

Greenlight purchased “CFG at $22.01, a discount to tangible book value and a significant valuation discount to its banking peers. Over time, we believe the eventual exit of RBS and improvement in CFG’s ROE will drive improvement in the stock’s valuation.”

Einhorn noted that the firm closed its short in Cliffs Natural Resources as part of its iron ore short thesis. “Ultimately, iron ore prices fell as we anticipated they would and CLF stock followed from $29.37, where we shorted it, to $11.28, where we covered it.”

Greenlight expected that “as an independent company starting with an almost unlevered balance sheet, KEYS will have the flexibility to invest in unexploited growth initiatives and make better R&D and capital allocation decisions.”

Einhorn believed “the Street doesn’t fully appreciate KEYS’ prospects. We purchased our position at an average price of $30.54, or about 12x near-term EPS, which doesn’t yet benefit from the investment spend. The shares ended the quarter at $33.77.”

Lastly, according to the letter, Greenlight “purchased Cigna at the height of the Obamacare scare in mid-2012 at $45.77. Ultimately, Obamacare didn’t injure the business. Earnings grew, the multiple expanded and we exited at an average of $81.67.”