A Look At Atlantic Investment Management’s Potential Activist Targets

Roepers and Atlantic Investment Management have also added to their position in ARRIS International plc (NASDAQ:ARRS), a provider of communications equipment for media and entertainment companies. Atlantic had its stake increased by 14% to 4.49 million shares, making ARRIS its third-largest equity position. Ricky Sandler’s Eminence Capital, also an activist investor, dumped 56% of its stake during the fourth quarter, reducing its holding to 4.36 million shares. Hedge fund sentiment towards ARRIS International did not change significantly, with the number of funds invested in the company having inched up to 30 at the end of December 2017, from 29 at the end of September.

Industry & Stock Performance

Communication Equipment industry ended 2017 on a bullish note and has pushed on higher despite the recent market sell-off. According to data from Fidelity, the industry is up 29.5% for the past twelve months, almost double the S&P500’s 15.9% rise. It’s also interesting to note that the industry index has already surpassed the peak that preceded the sell-off. ARRIS International plc (NASDAQ:ARRS) stock is significantly behind the industry average, currently flat trailing twelve months. By comparison, direct competitors are doing somewhat better, but still lagging the broader industry index. NetGear Inc. (NASDAQ:NTGR) is currently up by 5.3%, while Echostar Corporation (NASDAQ:SATS) stock has appreciated by 10.4% since February 2017.

Financials

So, the next logical step is to find out why ARRIS International plc (NASDAQ:ARRS) stock has been going nowhere. The company’s financial reports offer us some clues. In the past five years, the company has managed to grow its revenue through both organic growth and acquisitions. ARRIS International’s most recent acquisitions include the Ruckus Wireless division acquired from Broadcom Ltd (NASDAQ:AVGO) in 2017 and the British Pace PLC, bought in 2016. On the other hand, the company’s management failed to keep costs under control, as margins deteriorated significantly. Operating margin fell from 6.41% in 2014 to 1.62% in 2016 and increased slightly in 2017 to 1.88%, while net margins plummeted from 6.15% in 2014 to 0.27% in 2016 and then rose to 1.4% in 2017.

Disclosure: none.