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Sydnee Gatewood
Sydnee Gatewood
Articles (2605) 

Carl Icahn Boosts Stakes in Xerox, Occidental

Renowned activist guru adds to 2 of his top holdings

Activist investor Carl Icahn (Trades, Portfolio), leader of Icahn Capital Management, revealed he increased his stakes in Xerox Holdings Corp. (NYSE:XRX) and Occidental Petroleum Corp. (NYSE:OXY) last week.

The guru`s New York-based firm is known for taking activist positions in undervalued, struggling companies and working with management with the goal of improving profitability as well as unlocking value for shareholders.

According to GuruFocus Real-Time Picks, a Premium feature, Icahn upped his stake in Xerox by 7.73% on Aug. 5 and his position in Occidental by 12.5% on Aug. 3. Both companies are among his 10 largest holdings.

Xerox

The guru invested in 1.8 million shares of Xerox, impacting the equity portfolio by 0.16%. The stock traded for an average price of $16.12 on the day of the transaction.

He now holds a total of 25.26 million shares, which represent 2.29% of his total assets managed. GuruFocus estimates Icahn has lost 33.12% on the investment since the fourth quarter of 2015.

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In December 2019, the company offered to buy HP Inc. (NYSE:HPQ) for $35 billion. Despite Icahn`s encouragement for shareholders to accept the deal, it fell through in March as a result of the coronavirus pandemic.

The Norwalk, Connecticut-based company, which sells print and digital document products and services, has a $3.73 billion market cap; its shares were trading around $17.53 on Monday with a price-earnings ratio of 3.6, a price-book ratio of 0.65 and a price-sales ratio of 0.48.

The Peter Lynch chart shows the stock is trading below its fair value, suggesting it is undervalued. The GuruFocus valuation rank of 9 out of 10 supports this assessment since its price ratios are near multiyear lows.

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Xerox reported its second-quarter results on July 28, posting adjusted earnings of 15 cents per share on $1.47 billion in revenue. While earnings topped analysts` estimates, revenue fell short of expectations as the Covid-19 pandemic took a toll on its core enterprise printer and copier business.

Then, on Aug. 4, the company announced a $550 million offering of 5% senior notes due in 2025 and $550 million in 5.5% senior notes due in 2028. The notes were priced at par. The offering closed on Aug. 6.

GuruFocus rated Xerox`s financial strength 5 out of 10. Although the company has adequate interest coverage, the Altman Z-Score of 1.72 warns it could be in danger of going bankrupt.

The company`s profitability scored a 6 out of 10 rating on the back of an expanding operating margin, strong returns that outperform a majority of competitors and a moderate Piotroski F-Score of 6, which indicates business conditions are stable. As a result of recording a decline in revenue per share over the past five years, the predictability rank of one out of five stars is on watch. According to GuruFocus, companies with this rank typically return an average of 1.1% annually over a 10-year period.

With an 11.86% stake, Icahn is Xerox`s largest guru shareholder. Jim Simons (Trades, Portfolio)` Renaissance Technologies, Joel Greenblatt (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Caxton Associates (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Lee Ainslie (Trades, Portfolio) and Chuck Royce (Trades, Portfolio) are also invested in the stock.

Occidental Petroleum

Icahn picked up 11.07 million shares of Occidental, impacting the equity portfolio by 0.93%. Shares traded for an average price of $15.25 each on the day of the transaction.

While opposed to the company`s takeover of Anadarko Petroleum in 2019, the guru now holds 99.7 million shares total, accounting for 8.37% of his total assets managed. GuruFocus data shows he has lost an estimated 54.42% on the investment since the second quarter of 2019.

The oil and gas producer, which is headquartered in Houston, has a market cap of $14.93 billion; its shares were trading around $16.02 on Monday with a price-book ratio of 0.65 and a price-sales ratio of 0.58.

According to the median price-sales chart, the stock is undervalued. The GuruFocus valuation rank of 9 out of 10 also leans toward undervaluation.

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The company will report its second-quarter earnings after the closing bell on Monday.

Weighed down by debt and weak interest coverage, Occidental`s financial strength was rated 3 out of 10 by GuruFocus. The low Altman Z-Score of 0.56 also warns the company could be in danger of bankruptcy. Its assets are also building up at a faster rate than revenue is growing, suggesting it may be becoming less efficient.

The company`s profitability fared a bit better, scoring a 6 out of 10 rating. While it has a strong operating margin, the returns are negative and underperform a majority of industry peers. It also has a low Piotroski F-Score, which indicates business conditions are in poor shape, and the one-star predictability rank is on watch.

Of the gurus invested in Occidental, Dodge & Cox has the largest stake with 12.86% of outstanding shares. Other top guru shareholders include Warren Buffett (Trades, Portfolio), the T Rowe Price Equity Income Fund (Trades, Portfolio), Simons` firm, Ken Fisher (Trades, Portfolio), Pioneer, Bruce Berkowitz (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Ray Dalio (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Barrow, Hanley, Mewhinney & Strauss and BP Capital Fund Advisors (Trades, Portfolio).

Portfolio composition

Over half of Icahn`s $18 billion equity portfolio, which was composed of 19 stocks as of the end of the first quarter, was invested in the industrials sector.

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His largest holdings as of the end of the three months ended March 31 were Icahn Enterprises LP (NASDAQ:IEP), CVR Energy Inc. (NYSE:CVI), HP, Herbalife Nutrition Ltd. (NYSE:HLF), Occidental, Caesars Entertainment Corp. (which has since been delisted), Cheniere Energy Inc. (LNG), Newell Brands Inc. (NASDAQ:NWL), Xerox and Cloudera Inc. (NYSE:CLDR).

Disclosure: No positions.

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About the author:

Sydnee Gatewood
I am the editorial director at GuruFocus. I have a BA in journalism and a MA in mass communications from Texas Tech University. I have lived in Texas most of my life, but also have roots in New Mexico and Colorado. Follow me on Twitter! @gurusydneerg

Rating: 4.0/5 (2 votes)

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Comments

Praveen Chawla
Praveen Chawla premium member - 1 month ago

Funny Picture of King Carl.

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