As Manitowoc Company Inc (NYSE:MTW) posted its financial results for the second quarter, it attracted the attention of two investors, who boosted their passive positions in the company at the end of July. As two new filings with the SEC reveal, Alan Fournier‘s Pennant Capital Management and Christian Leone‘s Luxor Capital Group boosted their stakes in the company to 7.4% and 5.0% of its outstanding stock respectively. In this way, Pennant holds 10.13 million shares, up from 8.16 million shares disclosed in its latest 13F filing, while Luxor owns 6.83 million shares, versus 1.79 million held as of the end of March.
The move looks surprising from one point, as Manitowoc Company Inc (NYSE:MTW)’s financial results weren’t that good. The capital goods company posted EPS of $0.22, missing the consensus estimate of $0.35, while its sales of $885.4 million declined by 12.6% on the year, mainly due to currency headwinds. Following the earnings a number of analysts downgraded the stock or reduced their price targets. In this way, Credit Suisse and Stifel Nicolaus reiterated ‘Buy’ ratings on Manitowoc and cut their price targets to $22 and $23 per share, respectively. Deutsche Bank lowered its price target to $18 with a ‘Hold’ rating, and BB&T Corp. downgraded the stock to ‘Hold’ from ‘Buy’.
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In addition, on the same day the earnings results were released, July 29, the company announced the appointment of a new CEO for its Foodservice division, Hubertus M. Muehlhaeuser. Manitowoc operates in two divisions, Cranes and Foodservice, the second posting flat sales of around $407.7 million, versus $606.1 million for the Cranes segment, whose sales declined over the year.
One of the reasons for Luxor and Pennant to increase their positions is the impending split of Manitowoc Company Inc (NYSE:MTW) into two businesses, which should bring more value to shareholders. Activist investors Carl Icahn and Ralph Whitworth of Relational Investors had been pushing for the split for months until January, when the company announced the spin-off of the Foodservices segment and reached an agreement with Icahn, under the terms of which Manitowoc committed to some corporate governance provisions for the Foodservice division and appointed Icahn’s representative to the board. The tax free spin-off is expected to be completed by the end of the first quarter of 2016.
The spin-off news boosted the confidence of investors in the company and even though the stock declined by more than 20% since the beginning of the year, the last round of 13F filings showed a boost in the amount of bullish sentiment from hedge funds from within our database. At the end of March, 22 investors held over $1.0 billion worth of Manitowoc Company Inc (NYSE:MTW)’s stock, which represented more than 34% of the outstanding stock. However, the stock lost some of its popularity as the number of funds with long positions declined from 31 at the end of December, though the aggregate value of their positions surged from $615.36 million.
We consider hedge fund sentiment an important part of a stock’s analysis because it can provide some insights about the smart money’s opinion about a company. Moreover, Manitowoc falls under the terms of our small-cap strategy, which showed that 15 most popular small-cap ideas among a pool of 700 hedge funds can beat the market by a wide margin. Our strategy has returned 123% since August 2012 and outperformed the broader indices by around 65 percentage points (see more details here). In this way, even though the stock lost some ground in the past months, it seems like the investment will reward the investors once the spin-off is completed.
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The aforementioned Carl Icahn and Relational Investors were among the largest shareholders of the company in our database. Icahn held 10.58 million shares at the end of March, while Relational owned 6.69 million shares. In addition, another large shareholder of Manitowoc Company Inc (NYSE:MTW) is Larry Robbins’ Glenview Capital, which raised its stake in June to 9.61 million shares and changed the nature of its position to activist, although it has not disclosed any moves regarding the company.
With this in mind, taking into account the latest increases to their stakes in Manitowoc Company Inc (NYSE:MTW) by Luxor and Pennant, and the overall bullish sentiment from hedge funds, we consider that the market has not discovered the company’s potential and significantly undervalues it by focusing on its financial results, which are affected by external economic factors, among other things.
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