Activist investor Carl Icahn has been busy this year, and we have reported on a slew of 13D filings that have followed his often nasty battles. But now that the second quarter has ended and the smoke has cleared, how do his positions stand relative to each other? What are his current plans, particularly when the more headline-grabbing moves he has made are combined with the ones that have gotten less media attention and the positions which he has held constant or sold out of? We have taken a look at Icahn Capital’s 13F filing for the second quarter compared to previous filings and here are some big moves we have noticed and what Icahn’s rationale is:
CVR. Icahn increased his position in CVR Energy (NYSE:CVI) from 13 million shares to 71 million shares. CVR has two divisions which operate very different businesses: its Petroleum segment refines oil into products such as gasoline and diesel fuel and then markets the resulting products, while its Fertilizer segment produces nitrogen-based fertilizers. Now that Icahn has taken over the company, he has a little under a year remaining to sell to a strategic buyer and return profits to shareholders (including, obviously, himself). At its current stock price CVR trades at nine times trailing earnings, a low multiple which indicates that the market is skeptical that Icahn can find a buyer, but he himself recently offered to buy all outstanding shares at no more than $30.
Chesapeake. Chesapeake Energy (NYSE:CHK) had a series of unfortunate events befall it earlier this year that sent the stock price tumbling away from its fundamental value. Investor sentiment declined due to corporate governance issues, and then short sellers started to question whether Chesapeake would be able to sell enough of its assets in order to raise cash for the year, and then the realization that Chesapeake might have to make such sales out of desperation caused speculation that the company would have to accept fire-sale prices. Icahn, however, has stepped in and seems to merely want to improve governance (which we can now that he has allies on the board) and wait for the stock price to recover. He has described Chesapeake as “very undervalued” and we would agree, noting that the company trades at six times trailing earnings and less than the book value of its equity. The risks here are being unable to complete its asset sales and continued low natural gas prices, but we agree with Icahn that it’s worth the risk (read previous coverage on Icahn's investment in Chesapeake).
Navistar/Oshkosh. Icahn has been pushing for a merger of Navistar (NYSE:NAV) and Oshkosh (NYSE:OSK) and improved his prospects slightly over the course of the second quarter by increasing his stake in Navistar from 7.3 million shares to 8.3 million. We covered this move in an earlier article. Navistar is encountering difficulties regarding its latest model of truck engine and whether or not it will receive government approval, and this uncertainty has driven the stock price down 38% compared to a year ago- even with the knowledge of Icahn’s involvement. Unlike with Chesapeake, we have concerns about Navistar’s business and think that a merger of some kind might have to happen in order for an investor to profit. Oshkosh trades at reasonable value levels of 12 times trailing earnings and 10 times forward estimates, so it would make a better pick for an investor who sees potential synergies from a deal but also wants to make a value investment in order to have some downside protection. However, we’re not sure we would recommend it on an absolute basis.
There is quite a bit of diversity in these positions which Icahn increased in the second quarter. CVR seems like a good value play, but if Icahn manages to buy out the company for $30 per share the upside to a current investor would be limited. Chesapeake has some risks to it but we think that the company will do well enough in the future to justify a higher stock price; the value case here also doesn’t depend on a major transaction, merely the selling of many of the company’s assets. We are wary of getting involved with the Navistar/Oshkosh play simply because of all the moving pieces, but we would certainly recommend to potential Icahn followers that if they are going to imitate his thesis on these companies they should put more weight on the lower-priced Oshkosh.