Spruce Point Capital Management

The S&P 500 index committee has been called secretive and opaque. We can only gain insights into some of the determining factors by evaluating what has been included. Today, we profile our short opinion in a forensic report on Erie Indemnity Co. (Nasdaq: ERIE) a $25bn property and casualty insurer that was recently added to the S&P 500. We now know the committee will include a company with just one client losing billions of dollars! ERIE's sole client is Erie Exchange where it collects the maximum allowable 25% management fee on premiums written and acts as the attorney-in-fact for policyholders. Erie Exchange's financials are not in SEC-filings, but rather are contained in statutory filings. Insurance credit agency AM Best recently downgraded the outlook for the group. There is historical precedent over 20 years ago that ERIE has cut the management fee when the Exchange's condition deteriorates and when AM Best last made a rating decision. There is only one sell-side analyst covering ERIE and the assumption is that the management fee will not change; we believe that assumption should be challenged. ERIE is one of the best performing large cap P&C insurers YTD with a rich 46x P/E multiple on our estimates. We believe the multiple should contract to reflect growing earnings risk and see 35%-55% downside risk potential and believe the share price will underperform its industry and equity markets. To download the full report, along with the investment disclaimers, visit https://lnkd.in/dB7hdtsW #activism #stocks #wallstreet #investing #shortselling #insurance

Market distortions abound as equity markets in the U.S. linger near all-time highs. We've identified a particularly lopsided short idea that we'll profile tomorrow - Friday October 18th - on our website www.sprucepointcap.com

We are pleased to issue a Strong Sell research opinion on hashtag #Intuit (Nasdaq: INTU) - well known for #TurboTax and #QuickBooks, we believe they have spent $20bn on botched acquisitions such as #MailChimp and #CreditKarma. We see their business as under pressure and their financial transparency is declining. In addition, we find a history of consumer unfriendly practices. We disagree with the market view that Intuit is a high-quality SaaS company deserving of an 11x revenue multiple. We see 40%-80% downside risk and expect the share price to underperform #technology #software and the broader equity market. https://lnkd.in/dUPQSEGS

Please catch me tomorrow, Friday Sept 20th on the floor of the NYSE for a live interview with CNBC. We'll be discussing our largest short idea to date; a well-known company that hasn't quite gotten the scrutiny it deserves. We believe it to be a consumer unfriendly to large portion of the American public that uses its products and not nearly deserving of its nosebleed valuation given the numerous signs of financial strain, botched acquisitions, and financial reporting + accounting gamesmanship we've identified. #activism #wallstreet #forensics #finance #investments #shortselling

Very pleased to issue a unique forensic opinion on Zebra Technologies (Nasdaq: ZBRA), live on our website. We believe they are failing to innovate and are experiencing limited growth in their hardware solutions (80% of revenues, ex: , barcode scanners and imagers, radio frequency identification hashtag #RFID readers, specialty #printers for barcode labeling and personal identification, real-time location systems) and services and software revenues (20%) are grinding to low/no growth. We believe they have made $2.1bn of expensive and levered acquisitions that are failing to pan out in hashtag #robotics and #machinevision. #VentureCapital bets are starting to be impaired an pressures mounting. We also believe they have large exposure to the #retail / #apparel market with Walgreens being a key customer. We identify a broad range of #accounting and financial reporting concerns, underscored by the CAO's work history and the appointment of new Board member to the Audit Committee that worked at a Company that restated results. We see a growing rift of alignment between shareholders, management and the Board. We estimate a sum-of-parts illustrative valuation to indicate substantial overvaluation by 65%-80%. Download the report and review our disclaimers. https://lnkd.in/dJpdMfcR

We have a unique forensic report at www.sprucepointcap.com tomorrow August 8th. We hope it adds value by exploring a Company that we do not believe has been evaluated with a critical lens. #activism #wallstreet #forensic #research

Yesterday was a thesis validating event with our short-opinion on Floor & Decor (NYSE: FND). The Company curtailed its store growth plans in 2024 from 30-35 to 30 and also said 2025 would be only 25 news stores vs. the market's expectation of 34 stores. Same store sales declined sharper than expected and they admitted the need to invest more in an IT-Enterprise Resource Planning system which baffles us given the significant IT spend already incurred on technology. We believe the Company's issues are structural and not cyclical. Below was my interview on CNBC earlier this month. We still believe the share price is overvalued at 55x contracting earnings. https://lnkd.in/dgnECzx7

Everyone is talking about #Shrinkflation which is how companies are giving less product for an equal or greater price. But we find that Floor & Decor is shrinking its workers per store, potentially as a means to forestall earnings pressure or because of difficulty finding labor. However, we think this is a dangerous game to play and could be impacting customer service and/or sales. The Company is behind in its announced plans to open a West Palm Beach #Florida store by June. In a local filing, the Company says the store will have a maximum of 40 employees, which is materially below the 50 employees it usually cites. #flooring #tile #homeimprovement #realestate #housing #retail #activism #customerservice #shortselling #stockpromotion #wallstreet #investing

Reminder we'll be live on the floor of the NYSE with CNBC to discuss our new forensic report on Floor & Decor (NYSE: FND), "Floored By A Bad Investment" outlines the case why we believe that the Company's recent challenges are structural and not cyclical and why the same people behind Linens 'N Things (which had a similar retail strategy and ultimately restated financials and fell into bankruptcy) are overseeing FND and running the ship into the ground. We identify over $600M of debts (~$5.75/sh) we believe are not factored into market models and detail the Company's exploding new store capex and opex costs and argue this stock should not have the highest valuation in the home improvement/building products sector. We identify a range of accounting, financial reporting and business practice changes that we believe are telltale signs of pending financial stress. We see 40-60% downside risk and believe Pool Corp's (Nasdaq: POOL) recent home improvement warning and rising tariff risks from a Trump re-election (and FND's hashtag #China import exposure) should be carefully evaluated as 2025 estimates appear way too aggressive. We see the Company under growing pressure from The Home Depot Lowe's Companies, Inc. MSI #housing #flooring #homeimprovement

So you think hashtag #AI and #machinelearning can make better analysts and investing decisions? We think not.?On Monday July 1st at 11am EST?on CNBC on the floor of the NYSE we will?expose a Company we believe?is keeping?about a half billion dollars of debts off its books?which is?unaccounted for in market and analyst models. Not surprisingly, we also think the Company is at high risk of financial restatement and just crossed a key inflection point toward financial disappointment and distress. So how did we arrive at this conclusion? We used?our own?sophisticated pattern and behavioral recognition techniques to evaluate management and the Board. This led us down the path of evaluating a related public company with a similar business strategy from over 20 years ago led by insiders which restated financials, wildly missed guidance, and fell into bankruptcy. We think investors are placing undue faith in the future of this Company given?that?a world famous and respected investor has made a large bet on management. However, we question how the investment passes muster and reconciles with the investor’s own highly quotable investing philosophy,?given the multitude of accounting, financial reporting, and business practices adverse to both investors and customers which we’ve identified. #activism #investing #shortselling #wallstreeet