Hedge Funds Launch Activist Tag-Team Attack On Struggling Industrial Supplier

A new 13D filing with the SEC discloses that Coppersmith Capital Management, co-founded by its managing partner Jerome Lande, holds an ownership stake of nearly 1.43 million shares in Itron Inc. (NASDAQ:ITRI). More importantly, the freshly-disclosed filing also reveals that Coppersmith Capital has teamed up with Scopia Capital Management, founded by Matt Sirovich and Jeremy Mindich, to disclose a group stake of 2.35 million shares of Itron, which account for 6.2% of its outstanding shares. The freshly-formed group is set to engage in discussions with the company’s Board of Directors in an attempt to unlock shareholder value. The 1.43 million share-stake represents a new position for Coppersmith Capital, while the other investment firm has not made any transactions related to Itron over the past 60 days. Meanwhile, the shares of Itron have surged by over 4% in today’s trading session on the news.

Prior to diving into the content of the 13D filing submitted on behalf of both Coppersmith Capital Management and Scopia Capital, we will provide a brief overview of the two investment firms. Coppersmith Capital Management is an activist hedge fund co-established by Jerome Lande in 2012. The investment firm is primarily focused on event-driven investing, in undervalued small and mid-cap companies. As stated by its most recent 13F filing with the SEC, Coppersmith Capital manages a public equity portfolio worth $95.03 million as of June 30. Moving on to the other investment firm discussed in this article, Scopia Capital Management is an alternative asset management firm founded by Matt Sirovich and Jeremy Mindich back in 2001. The New York-based investment firm employs a value-driven investment approach across four different strategies. Scopia Capital has over $5 billion of assets under management, and manages a public equity portfolio with a market value of $5.15 billion as of the end of June.

Professional investors like Jerome Lande spend considerable time and money conducting due diligence on each company they invest in, which makes them the perfect investors to emulate. However, we also know that the returns of hedge funds on the whole have not been good for several years, underperforming the market. We analyzed the historical stock picks of these investors and our research revealed that the small-cap picks of these funds performed far better than their large-cap picks, which is where most of their money is invested and why their performances as a whole have been poor. Why pay fees to invest in both the best and worst ideas of a particular hedge fund when you can simply mimic the best ideas of the best fund managers on your own? A portfolio consisting of the 15 most popular small-cap stock picks among the funds we track has returned 118% and beaten the market by more than 60 percentage points since the end of August 2012 (see the details).

Let’s now move on to the target of the two investment firms’ activist campaign. Itron Inc. (NASDAQ:ITRI) is a technology company that provides end-to-end smart metering solutions to electric, natural gas, and water utilities. The tech company’s stock performance has been very poor in 2015, considering that its shares have lost over 26% since the beginning of the year. At the same time, the stock is not very popular among the hedge funds monitored by our team, with only 16 money managers invested in Itron at the end of the second quarter, compared to 18 registered in the prior one. Besides the aforementioned shareholders, Ian Simm’s Impax Asset Management and Jim Simons’ Renaissance Technologies are two bullish hedge funds on Itron, holding 1.23 million shares and 427,961 shares, respectively.

The 13D filing in question indicates that the freshly-formed activist group’s belief is that the shares of Itron Inc. were undervalued at the time of purchase and represented an attractive investment opportunity. The group outlined that the technology company has potential to rationalize its operations in order to enhance profitability, but also suggested that potential strategic alternatives, which can theoretically include a potential sale or merger, might unlock great shareholder value. The public filing also indicated that the group may make proposals to Itron regarding the ownership structure, board structure, subsidiary structure, or operations of the company, among other things. The management of the technology company did approve restructuring projects for its Electricity business and its related general and administrative activities, including several Gas and Water activities in November 2014, that were intended to enhance its operational efficiency and reduce expenses. Therefore, it appears that the activist group does not believe Itron’s management has made the most of these projects, which include the consolidation of certain facilities, along with the reduction of its global workforce.

Let’s now take a quick look at Itron Inc. (NASDAQ:ITRI)’s financial results for the second quarter. The technology company reported revenues of $470 million, compared to $489 million reported in the same period a year ago. The company’s top-line was negatively affected by foreign exchange headwinds, which impacted revenues by $50.2 million. Itron’s diluted loss per share came to $0.37 for the quarter, compared to a loss of $0.24 reported a year ago. The company’s ten largest customers generated 23% of its total revenues in the second quarter.

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