Is Unit Corp. (UNT) Positioned for Growth? Hedge Funds Think So

Unit Corp. (NYSE:UNT) generated interest from several hedge fund managers during the last quarter of 2013, with Israel Englander of Millennium Management, David Dreman of Dreman Value Management and John Overdeck and David Siegel of Two Sigma Advisors purchasing its shares. Other investors in the energy company include Chuck Royce of Royce & Associates (who is its largest shareholder, owning 6.9 million shares or a 14% stake), Cliff Asness of AQR Capital Management, and David Shaw of D E Shaw.

David Dreman

Unit Corp. (NYSE:UNT) is a $3.1 billion market cap diversified energy company engaged in the exploration for and production of oil and natural gas, the acquisition of producing oil and natural gas properties, the contract drilling of onshore oil and natural gas wells, and the gathering and processing of natural gas. The stock had a strong run recently, returning 28% over the past month and a half after reporting strong 4Q13 results and positive forward guidance in late February. In addition, in early December, Steven Klinsky’s New Mountain Capital disclosed owning 2.6 million shares of Unit, or a 5% stake (making the fund its sixth largest shareholder), with intentions to discuss with management changes to the company’s corporate and board structures, capital allocation and management compensation as well as options to maximize the value of its midstream (pipeline) division. Given the high valuations that Master Limited Partnerships (MLPs) have garnered from the equity markets, we believe a possible divestiture of its midstream business into a separately traded MLP could be a potential positive catalyst.

Unlike many of its peers that focus on Exploration and Production (E&P), drilling or pipelines, Unit Corp. (NYSE:UNT) operates across all three stages of the energy cycle, which has historically resulted in a conglomerate discount relative to its pure play peers from a valuation perspective. Despite Unit’s higher margin and return metrics and history of superior reserve growth and replacement, not to mention the recent rally in its shares, the stock still trades at a forward EV/EBITDA multiple of 4.9X versus 5.9X for peers. Investors may have come to the conclusion that separating Unit’s businesses into two or three independent entities would be the most expeditious way to unlock shareholder value, given the market’s receptivity to companies focused on their core operations. Management had already disclosed the potential sale of $100 million in non-core assets during 2014, following $382 million of similar sales over the previous three years. New Mountain and other hedge fund managers may want more drastic action; based on their actions, they could already be positioning for such an event in the near future.

Disclosure: none

Recommended Reading:

Royce & Associates Top Picks: Thor Industries Inc. (THO), Reliance Steel & Aluminum (RS) & More

NCR Corporation (NCR) Is a Tech Stock Worth Hedge Funds’ Attention

Hedge Funds Call on Telephone & Data Systems Inc. (TDS)

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The World’s Most Famous Circuses

Best Hair Stylists

Most Popular NASCAR Drivers

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!