Stocks traded in a narrow range on all three major indices Monday, but shares of Manitowoc Co. (MTW) bucked the trend by soaring more than 8.9% in relatively heavy trading.
Shares of the Wisconsin-based manufacturer of cranes and food service equipment closed the day at $22.79, an increase of $1.87 over its Friday closing price.
The company saw more than 12 million shares exchange hands Monday, compared to its usual trading volume of just over 2.7 million shares.
MTW has trailed the S&P 500 this year, losing more than 2.2% year to date… while the broader index is up more than 13.1%.
In fact, the stock had declined more than 28.8% before yesterday’s spike.
Monday’s surge brought the stock closer to a breakeven on the year, while bringing much-needed holiday cheer to MTW shareholders.
Can you expect the momentum to continue?
Activist Investors to the Rescue…
The catalyst behind Monday’s move was news that activist investor Carl Icahn took a 7.7% stake in Manitowoc.
In the SEC filing announcing Icahn’s position, Icahn Enterprises explicitly states that Manitowoc is significantly undervalued as a combined entity, and must be split apart.
You see, Icahn believes significant shareholder value can be realized if Manitowoc would separate its crane-making business from its food service segment.
And based on company information detailing the difficulty in finding buy-side analysts to cover the stock, Icahn is probably right.
This is because most investment analysts understand either the company’s crane business or its food service operations – but not both.
And it’s these seemingly contradictory business models that have resulted in an undervalued stock price for the $3.1-billion mid-cap company.
Ultimately, Icahn’s 7.7% stake will likely be the catalyst for the change to separate its two major segments in an effort to prop up Manitowoc’s stock price.
Icahn purchased 10.5 million shares at a cost of nearly $147 million, and comes with hints that Icahn may seek board representation “if appropriate.”
But wait, Icahn Enterprises isn’t the only activist investor accumulating shares of Manitowoc…
Relational Investors LLC disclosed last June that it’s taken an 8.5% stake in the company. Interestingly, Relational Investors also believes the company should be split into two segments.
While Relational Investors has cooled its efforts at forcing a split after its Co-Founder, Ralph Whitworth, took leave for health reasons, the firm still holds its large stake in the company.
Now, with more than 16% of the outstanding stock in the hands of two giants of activist investing, Manitowoc will be hard-pressed to resist outspoken demands to divide the company.
This is especially prescient now that the deadline for nominating directors is coming up next month for the company’s annual meeting in the second quarter – and despite Manitowoc’s poison pill, which goes into effect with a 20% trigger.
Can a Proxy Fight Be Good for The Stock?
To be sure, Manitowoc’s solid Q3 2014 performance is impressive – especially in light of the operational headwinds in the company’s crane making business.
Q3 2014 sales declined 2.5% to $986 million, with a 3.8% sales increase in the company’s food service segment offsetting a 6.7% decline in the crane segment.
But despite the company’s decline in revenue, MTW still managed to grow its earnings per share by 38.5% in the most recent quarter. This extends the company’s pattern of earnings growth to more than two years now.
The company’s net income increased by 38.2% compared to its results in Q3 2013, rising from $52.9 million to $73.1 million.
And now, with Manitowoc’s solid history of free cash flow conversion – coupled with activist investors like Icahn and Relational – this stock is primed to go much higher in 2015.
This crane maker is poised to raise its stock price on the back of the Icahn Express, and prudent investors will climb aboard.