Posted by Davy Bui on April 17th, 2008 in Stock Research

Mystery solved:

Horizon Lines Served With Warrants & Subpoena RE: Antitrust Investigation 

Details are scarce but my first instinct is that this is may not be as bad as it sounds.  Of course, my feelings mean nothing until more details about the investigation are released.  With HRZ’s heavy debt load and a large (and unbudgeted) capex program looming, it may be foolish to jump in here until a measure of the seriousness of the investigation is evident.

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An hour before today’s close, Horizon Lines (HRZ) just fell off a cliff, dropping 20% on almost 10x avg daily volume and continuing the descent after-hours.

I’ve posted my research report on Horizon Lines in the past and have been actively writing puts on it throughout the year.  I closed out the last batch a few weeks ago and currently do not have any position in this stock.  At these levels, the stock can be intriguing but mustering confidence is difficult as I can find no explanation for the stock selling off.

The company’s high debt load makes me wary of jumping in without getting some sort of explanation despite my previous research indicating the cheapness of the stock.  None of the finance sites (Yahoo, Google, Reuters, thestreet.com) have anything on it.  There’s been no SEC filing as of now and investor relations wouldn’t pick up the phone when I called them a short while ago.

Caution is definitely warranted here until further notice.  If the news is not too serious, writing puts at a lower strike price may be attractive.