Renowned activist investor Carl Icahn (Trades, Portfolio) disclosed a 6.86% stake in Newell Brands Inc. (NWL, Financial) on Friday.
According to GuruFocus real-time picks, Icahn picked up 33.3 million shares of the Hoboken, New Jersey-based consumer products manufacturer, which owns the Rubbermaid, Coleman, Sharpie, PaperMate and Elmer’s glue brands, for an average price of $28.6 per share, giving it 4.03% portfolio space.
In addition to his investment, Icahn also gained four seats on the company’s board of directors. On Monday, Newell announced it had approved the nominees, Patrick Campbell, Brett Icahn, Andrew Langham and Courtney Mather, whose positions were effective immediately. Icahn will select two additional nominees to be elected at the company’s annual shareholders’ meeting in May. In exchange, he has agreed to back the remaining board members.
According to CNBC, the deal was made to counter Starboard Value’s attempts to take full control of the company. The hedge fund, which owns 4.5% of Newell, has complained that the company’s performance has declined since it bought Jarden in 2016 and seeks to replace the entire board as well as CEO Michael Polk.
Along with its new board members, Newell also revealed it has expanded its accelerated transformation plan, which aims to reduce its large product portfolio to focus on top-performing brands. With the goal of making its structure “simpler, faster and stronger,” the company said it had identified several more “accretive divestiture opportunities” that will bring its total yield to approximately $10 billion.
In a statement, Polk welcomed the new board members and expressed his excitement for the transformation plan.
“Their collective expertise will complement the Board’s already-significant experience and will serve us well as we continue to execute on our accelerated transformation plan,” he said. “Our agreement with Carl Icahn (Trades, Portfolio) reflects our shared understanding of the complexity of our business and our strategy to win in the rapidly changing retail landscape.”
Icahn, who has a lot of experience in turning companies around, also issued a statement expressing his confidence in the new directors and the plan.
“I believe we will be successful in helping to enhance value in the same way at Newell Brands,” he said. “This company has a great stable of brands, and I believe a streamlined consumer-facing portfolio will help the company focus on the most important businesses and reignite the performance in their core businesses. The company is significantly undervalued today, and I believe this new Board will help the management team generate significant value for shareholders, first through an expanded transformation plan and then through strengthened underlying performance.”
Stock price and valuation
After the announcement, shares rose in early trading Monday before reversing lower after the market opened. With a market cap of $14.01 billion, the stock was trading around $28.88 with a price-earnings ratio of 5.13, a price-book ratio of 1 and a price-sales ratio of 0.96.
According to the Peter Lynch chart below, the stock is undervalued as it is trading below its fair value.
In addition, the chart below shows the stock is also trading below its historical median price-sales value.
Newell’s financial strength was rated 4 out of 10 by GuruFocus as it has issued much new debt over the past several years and has insufficient interest coverage. In addition, its Altman Z-Score indicates the company is under some financial stress.
Its profitability and growth, however, was rated 7 out of 10 as it has a moderate Piotroski F-Score of 6 and a one-star business predictability rating (out of five). While its operating margin has declined over the past several years, it still outperforms 62% of competitors.
The company’s dividend yield is also near a five-year high at 3.21%.
Other gurus have taken an interest in the stock as well. In the fourth quarter, Larry Robbins (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Richard Snow (Trades, Portfolio) and Tom Russo (Trades, Portfolio) established positions in Newell Brands. PRIMECAP Management (Trades, Portfolio), Barrow, Hanley, Mewhinney & Strauss, Robert Olstein (Trades, Portfolio), First Eagle Investment (Trades, Portfolio), Murray Stahl (Trades, Portfolio), the Signature Select Canadian Fund (Trades, Portfolio), Mario Gabelli (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio) are also shareholders.
GuruFocus estimates the stock lost 29% in 2017. Year to date, it has fallen 14%.
Disclosure: No positions.
