After a boost in the second quarter, Carl Icahn (Trades, Portfolio) disclosed earlier this week he reduced his stake in Tenneco Inc. (TEN, Financial) by 3.84%.
The guru's New York-based firm, Icahn Capital Management, is known for taking activist positions in undervalued, struggling companies and working with management in order to improve profitability as well as unlock value for shareholders.
According to GuruFocus Real-Time Picks, a Premium feature, Icahn sold 350,949 shares of the Lake Forest, Illinois-based automotive components original equipment manufacturer on Nov. 30, impacting the equity portfolio by 0.02%. The stock traded for an average price of $10.65 per share on the day of the transaction.
He now holds 8.78 million shares total, which account for 0.54% of the equity portfolio and represent a nearly 11% stake in the company. GuruFocus estimates the firm has lost 52.65% on the investment since establishing it in the fourth quarter of 2018.
The company, which also manufactures aftermarket ride control and emissions products, has am $884.35 million market cap; its shares were trading around $10.86 on Friday with a price-sales ratio of 0.06.
The median price-sales chart shows the stock is trading below its historical value, suggesting it is undervalued. The GuruFocus valuation rank of 10 out of 10 also aligns with this assessment.
The company reported its third-quarter results on Nov. 2, posting adjusted earnings of 33 cents per share on $4.3 billion in revenue, which declined 2% from the prior-year quarter.
In a statement, CEO Brian Kesseler said the company's "results demonstrate the effectiveness of our operational execution" as Tenneco leverages its "global scale and diversified portfolio to deliver strong cash flow performance and year-over-year margin expansion in the face of the prolonged impact of the Covid pandemic."
He also noted the company is positioned to "finish 2020 with positive momentum." Tenneco expects its value-added revenue for the fourth quarter to be close to that of the third quarter, its value-added adjusted Ebitda margin to increase almost 200 basis points year over year and anticipates full-year capital expenditures of approximately $380 million.
On Nov. 12, Tenneco also announced its plans to issue $500 million in aggregate of Senior Secured Notes due in 2029, which were sold at par. The offering closed on Nov. 30.
GuruFocus rated Tenneco's financial strength 3 out of 10. As a result of issuing approximately $2.8 billion in new long-term debt, it has poor interest coverage. The Altman Z-Score of 0.75 also warns the company could be at risk of bankruptcy if it does not improve its liquidity position. Assets are also building up at a faster rate than revenue is growing, indicating it may be becoming less efficient.
The company's profitability fared better, scoring a 7 out of 10 rating despite having declining margins and negative returns that underperform a majority of competitors. Tenneco also has a low Piotroski F-Score of 3, which indicates operations are in poor shape. Due to losses in operating income and declines in revenue per share over the past several years, the predictability rank of one out of five stars is on watch. According to GuruFocus, companies with this rank return an average of 1.1% annually over a 10-year period.
Icahn remains the company's largest guru shareholder with 10.79% of outstanding shares. David Tepper (Trades, Portfolio), Ronald Muhlenkamp (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), John Hussman (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and Jeremy Grantham (Trades, Portfolio) also have positions in the stock.
Portfolio composition
Over half of Icahn's $17.37 billion equity portfolio, which was composed of 16 stocks as of the end of the third quarter, was invested in the industrials sector.
His largest holdings as of the end of the three months ended Sept. 30 were Icahn Enterprises LP (IEP, Financial), Herbalife Nutrition Ltd. (HLF, Financial), Cheniere Energy Inc. (LNG, Financial), Occidental Petroleum Corp. (OXY, Financial) and CVR Energy Inc. (CVI, Financial).
Disclosure: No positions.
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