Iridian Asset Management Owns 6% of W.R. Grace

A 13G filed with the SEC has disclosed that Iridian Asset Management, a special situations fund managed by David Cohen and Harold Levy, now owns 4.5 million shares of W.R. Grace & Co. (NYSE:GRA). W.R. Grace is a $5.4 billion market cap specialty chemicals company best known for its catalysts which are used to convert oil into transportation fuels. In the third quarter of 2012, Iridian increased its stake in the company by 52%, to a total of 2.7 million shares; this new filing reports an increase of 67% from that level. We calculate that at the current stock price of about $71.80 per share Iridian’s position is worth over $320 million, which would make it among the largest- if not the largest, as it would have been in Q3- positions by market value in the fund’s portfolio. Find more of Iridian’s favorite stocks.

In the third quarter of 2012, W.R. Grace & Co. experienced a 10% decline in revenue; this reversed the trend of top-line growth that the company had shown in the first half of the year. While W.R. Grace did reduce its COGS and SGA expenses, and margins actually improved despite the fall in sales, earnings did end up decreasing by 7%. The catalyst business, which is the largest source of revenue and responsible for over half of segment operating income, was the primary culprit: revenue and operating income there were each down close to 20%.

The markets are pricing in a recovery at the company, with the current price representing a trailing P/E of 21. Wall Street analyst consensus is for significant earnings growth in 2013- the current-year P/E is only 16- and certainly Cohen, Levy, and their team have to be depending on an improved bottom line at the company. However, we would be wary of investing in a stock with that multiple unless it showed actual prospects of a turnaround.

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