Echo Street Capital Management LLC is one of the top performing hedge funds, consistently outperforming average hedge fund portfolios and S&P 500 benchmarks. The $2.94 billion fund is presently helmed by trading genius Greg Poole. As per the latest 13-F filings, the fund has made some intriguing portfolio moves in the burgeoning payments industry. Poole hiked his positions in three big payment stocks Mastercard Inc. (NYSE: MA), Visa Inc. (NYSE: V), as well as Paychex, Inc. (NASDAQ: PAYX).
According to TipRanks, five-star hedge fund manager Greg Poole of Echo Street is ranked #16 out of 203 hedge funds, having achieved a staggering 84.8% portfolio gain since June of 2013 and a 3.37 sharpe ratio. Poole’s portfolio yields an average return of 19.22%.
Poole is a former Goldman Sachs Asset Management Portfolio manager. He joined Goldman Sachs as a real estate securities analyst in 1998 and became portfolio manager in 2000. His previous experience includes investment analysis and financial structuring for the Real Estate Principal Investment Group of the Investment Banking Division of Goldman, Sachs & Co. which he joined in 1996. Mr. Poole received his B.A. in Honors Economics from the University of Western Ontario in 1996.
New York City-based Echo Street Capital Management LLC was founded on February 27, 2002, and is an employee owned investment manager. It employs a combination of fundamental, charting analysis, cyclical, and quantitative analysis to make its investments. It typically invests in value stocks of companies. Greg Poole is the majority owner of the firm and has been in this role with the firm since 2002.
Echo Street employs event-driven, special situations, and traditional long/short strategies, and has a penchant for the real estate sector. The firm primarily provides its services to pooled investment vehicles. It also caters to charitable institutions. The firm manages client focused equity portfolios. It also manages hedge funds for its clients. The firm invests in the public equity markets.
Let us now take a closer look at the three key stocks that Poole has revved up for Q3.
Mastercard Inc. (NYSE:MA)
In Q3, Poole boosted its stake in card-network giant Mastercard by 14.85% to a total value of $45.68 million. The stock has gained 8.5% since the last filing.
KeyBanc analyst Josh Beck had recently raised his price target for MasterCard to $170 from $165 after the company posted a broad-based beat with payment volume, every revenue segment, and EPS all topping his expectations. Mastercard’s quarterly earnings and revenue reported were EPS of $1.34 (vs. the expected $1.23) and Revenue of $3.4 billion (vs. $3.28 billion expected).
According to recent reports, MasterCard has filed a patent on its own blockchain-based money transfer solution. In the patent application, the company describes a blockchain-based database capable of instantaneously processing payments, guaranteeing that merchants don’t need to wait days before receiving funds for their products. The tech would also help MA to keep an ongoing record of these transactions, verifying that a vendor was actually paid after a particular sale.
A British consumer had attempted to bring a £14 billion ($18.7 billion) antitrust suit against Mastercard Inc. over credit card swipe fees. In a recent order by a U.K. competition appeal court, Mastercard won £289,000 to cover its costs for defending itself.
Most on the Street see value in Mastercard, considering TipRanks analytics show MA as a Strong Buy. Out of 22 analysts polled by TipRanks in the last 3 months, 19 are bullish on MA stock while 3 remain sidelined. With a return potential of nearly 5.45%, the stock’s consensus target price stands at $161.30.
Visa Inc. (NYSE:V)
Visa, one of the top players in the credit card and electronic payments space, was already in Poole’s pocket of compelling prospects. For Q3, Echo Capital lifted its holdings by 20.70%. This is currently worth $37.8 million. Since the last filing, Visa has given a tidy 6.97% returns.
Visa seems to have a lot of positive catalysts like strong earnings outlook, a strong value from Visa Europe acquisition, consistent revenue growth, and a strong balance sheet position.
BofA Merrill Lynch analyst Jason Kupferberg said that the most interesting new disclosure in Visa’s (V) just-filed 10-K was that the European Commission may require the company to reduce its European cross-border interchange rates. The EC is focused specifically on interchange fees set by Visa and MasterCard (MA) that represent revenue for their card issuers, while their own network fees are not being looked at, Kupferberg noted. However, depending on how much these interchange fees are potentially cut, he said that he can’t rule out some type of downstream impact on fees. The analyst does not see any cause for concern about near-term estimates, recommends keeping a close eye on this issue. He keeps a Buy rating on Visa shares.
Wall Street agrees with Poole that this card industry leader is one to watch, as TipRanks analytics exhibit Visa as a Strong Buy. Out of 18 analysts polled in the last 3 months, 16 are bullish on Visa stock while 2 remain sidelined. With a return potential of 9.5%, the stock’s consensus target price stands at $123.06.
Paychex, Inc. (NASDAQ:PAYX)
Paychex is a key player in the Services space, with a focus on Staffing & Outsourcing Services. In Q3, Poole added another +34.31% to its holdings of PAYX translating to a total value of $42.27 million. This proved to be yet another smart decision, as the stock gained 8.72% since the last filing and is currently trading near its all-time high levels.
Paychex, a primarily a provider of payroll, human resource, and benefits outsourcing solutions, started fiscal 2018 on an impressive note and reported solid results for the fiscal first quarter. Both the top and bottom lines registered year-over-year improvement and came ahead of the respective Consensus Estimate.
Paychex reported total revenues (including interest on funds held for clients) of $816.8 million, up 4% year over year. While Payroll Service segment revenues went up 2% from the year-ago period, Human Resource Services segment revenues rose 7% year over year. During the quarter, Paychex paid $179.1 million as dividend and repurchased shares worth $94.1 million. Experts expect PAYX to grow earnings at an 8.43% annual rate over the next 5 years.
Poole’s move is at odds with the generally bearish market outlook on Paychex. The stock has a Moderate Sell analyst consensus rating with 3 hold ratings and 2 sell ratings published on the stock over the last three months. The average analyst price target stands at $61.00 which translates into a -5.69% downside from the current share price.
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