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Graham Griffin
Graham Griffin
Articles (195) 

Carl Icahn Boosts Xerox, Cuts Back Tenneco

Guru continues on trade patterns

Carl Icahn (Trades, Portfolio) has revealed an addition to his Xerox Holdings Corp. (NYSE:XRX) holding alongside a reduction in his Tenneco Inc. (NYSE:TEN) holding according to GuruFocus' Real-Time Picks, a Premium feature.

Icahn 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. He seeks to avoid consensus thinking and believes the momentum with trends will always fall apart.

Icahn first purchased the Xerox holding in the fourth quarter of 2015. Since the initial purchase, the guru only made one significant reduction to the holding at the beginning of 2018. 2020 saw the holding grow by 18.2%, with an additional 9% growth in 2021.

On March 2, the guru purchased an additional 123,452 shares to grow the holding by 0.41%. On the day of the transaction, the shares traded at an average price of $25.77 per share. Overall, the purchase had a 0.02% impact on the portfolio and GuruFocus estimates the total gain of the holding at 2.66%.

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Xerox (NYSE:XRX) is an original equipment manufacturing and software company. The company operates in the design, development and sale of printing technology and related solutions segments. It derives 60% of its revenue from the U.S. and 40% from international markets. The company is an OEM of multifunction printers, or MFPs (printers that can print, copy and scan), focusing on large enterprise markets. Xerox is attempting to enter new markets like digital print packaging solutions and printed electronics.

On March 5, the stock was trading at $25.95 per share with a market cap of $5.13 billion. According to the GF Value Line, the shares are trading at fair value.

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GuruFocus gives the company a financial strength rating of 5 out of 10, a profitability rank of 6 out of 10 and a valuation rank of 6 out of 10. There are currently three severe warning signs issued for a declining operating margin, Altman Z-Score of 1.76 placing the company in the distress column and declining revenue per share. The company's cash-to-debt ratio of 0.55 is approaching the maximum seen over the last 10 years, but ranks it lower than 77.33% of the software industry.

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Icahn is the largest shareholder with 15.25% of shares outstanding. Other top shareholders include Vanguard Group Inc. (Trades, Portfolio), Dimensional Fund Advisors LP (Trades, Portfolio), BlackRock Inc. (Trades, Portfolio) and Bank of New York Mellon Corp. (Trades, Portfolio).

One day prior to his addition in Xerox, Icahn sold 1.23 million shares of his holding in Tenneco (NYSE:TEN). The sale reduced the position by 14.93% on the heels of a 16.73% reduction near the end of February. On the day of the transaction, the shares traded at an average price of $11.14. The sale had a -0.07% impact on the portfolio and GuruFocus estimates the total loss of the holding at 39.93%.

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Tenneco's emissions-control products meet strict air-quality legislation, optimize engine performance, improve fuel economy, and acoustically tune engine sound to fit a vehicle's profile. Ride-control products enhance safety by enabling improved steering, braking, and acceleration as well as improving ride comfort. Champion, Fel-Pro, Moog, Monroe, and Walker are some of Tenneco's well-known aftermarket brands.

As of March 5, the stock was trading at $11.24 per share with a market cap of $919.82 million. The shares are fairly valued according to the GF Value Line.

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GuruFocus gives the company a financial strength rating of 2 out of 10, a profitability rank of 7 out of 10 and a valuation rank of 10 out of 10. There are currently eight severe warning signs issued, including new long-term debt, poor financial strength and extremely low interest coverage. The company's weighted average cost of capital has exceeded the return on invested capital over the last two years.

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Icahn is the largest shareholder with 8.64% of shares outstanding. Other top shareholders include Vanguard Group, BlackRock, Dimensional Fund Advisors, Fuller & Thaler Asset Management, Inc. (Trades, Portfolio) and Citigroup Inc. (Trades, Portfolio).

Portfolio overview

At the end of the fourth quarter of 2020, Icahn's portfolio contained 18 stocks, with two new holdings. It was valued at $20.06 billion and has seen a turnover rate of 3%. The top holdings are Icahn Enterprises LP (NASDAQ:IEP), Occidental Petroleum Corp. (NYSE:OXY), CVR Energy Inc. (NYSE:CVI), Herbalife Nutrition Ltd. (NYSE:HLF) and Cheniere Energy Inc. (LNG).

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By weight, the top three sectors represented are industrials (61.96%), energy (18.69%) and consumer defensive (9.54%).

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Disclosure: Author owns no stocks mentioned.

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