Blue Harbour Group is Bullish on Babcock & Wilcox Co (BWC) and Reports a 6.0% Stake

Clifton S. Robbins‘s Blue Harbour Group is bullish on Babcock & Wilcox Co (NYSE:BWC), reporting an activist 6.0% stake in its latest filing with the U.S. Securities and Exchange Comission. In this way, Blue Harbour currently owns over 6.62 million shares, upping its stake from around 1.1 million shares reported by the fund in its latest 13F. The fund has bought approximately 3.29 million shares for an average price of $33.45 apiece.

Babcock & Wilcox Co (NYSE:BWC)

According to the filing, the fund also continues to monitor the company and its operations, development, capital structure and other matters. Moreover, the fund may engage in discussions with the Board, other shareholders as well as industry analysts regarding the issues related to Babcock & Wilcox Co (NYSE:BWC).

At the same time, Insider Monkey received a perspective on the company from Robb LeMasters, a managing director of Blue Harbour Group:

“As a midcap multi-line manufacturer with strong competitive positions in end markets that have varied prospects, Babcock & Wilcox has all of the ingredients to be deeply undervalued by investors, and we believe it is.  But the company also has a relatively new management team with no legacy views and many levers – operational, capital allocation and strategic – available for building and unlocking shareholder value.”

“Management recently demonstrated their willingness to make big, tough decisions when they announced that they’ll significantly reduce investment in a promising project that’s simply too large and too far from commercialization for a company its size.  We believe that, with a few more similarly wise management decisions alongside strong execution of operating initiatives in the Power Generation segment, Babcock & Wilcox can solidly grow earnings and its stock can deliver very attractive gains for shareholders over the next couple of years.  We look forward to continuing our support of Babcock & Wilcox and its management team’s efforts,” Mr. LeMasters added.

The stock of Babcock & Wilcox Co (NYSE:BWC), a $3.9 billion market cap electrical equipment company, has gained over 32% in the past year and currently trades near its 52-week high of $36.00. It trails a P/E of around 11.60, below the industry average of almost 23.00. Last month, the company announced that it intends to restructure its mPower Small Modular Reactor program, which would allow it to focus on the technology development. The company plans to invest up to $15 million a year starting with the third quarter of 2014, according to a statement. For the previous year, the company announced net earnings of $2.17 per share, slightly missing the estimates, but beating the 2012 result of $1.75. For the current year, the company is expected to deliver EPS in the range between $2.30 and $2.35.

Kenneth Mario Garschina‘s Mason Capital Management and Larry Robbins‘ Glenview Capital are two other important shareholders of Babcock & Wilcox Co (NYSE:BWC), holding around 11.90 million and 5.5 million shares respectively, as of the end of 2013.

Blue Harbour is a long-short activist hedge fund but it also manages a long-only fund. Blue Harbour’s AUM is around $3 billion. At the end of last year, the fund’s equity portfolio amounted to around $1.5 billion being represented primarily by Services and Technology stocks (at the time Blue Harbour had only $1.8 billion in AUM). CACI International Inc (NYSE:CACI) and Progressive Waste Solutions Ltd (USA) (NYSE:BIN) represent two largest holdings of Blue Harbour, amassing together almost 23% of its 13F portfolio.

Disclosure: none

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