Can Icahn Turn Xerox and His Own Portfolio Around?
The broader markets may be near record-highs, but it’s still been a brutal year for investors, including professional investors like Carl Icahn, thanks to wild swings in stock prices, corrections, and flash crashes. It has also opened the window of opportunity for those with an extra one or two billion dollars to throw around. This may explain why billionaire hedge fund manager took a massive 7.1% stake in Xerox Corporation (NYSE:XRX). Was this a smart move for Icahn and can he help turn XRX stock around after shares have fallen 23% so far this year?
It’s been a tough year for investors, even for sharp minds like billionaire investor, business magnate, and activist shareholder Carl Icahn. As the 70th wealthiest person in the world, with a net worth of $21.2 billion, Icahn’s investment portfolio took a 10.3% hit for the third quarter ended in September. This has resulted in a 2.8% loss for the year. (Source: “Carl Icahn Reports 10.3% Investment Loss,” USA Today, November 5, 2015.) The biggest declines came from stocks like Chesapeake Energy, of which Icahn is the largest shareholder with more than 73 million shares, or an 11% stake in the company.
It didn’t start out that way for Icahn. His investment fund actually posted a solid 8.4% increase in the first half of 2015. Aside from being knee deep in oil, Icahn continues to bet big on technology companies like Apple Inc.
Shares in Icahn Enterprises LP (NYSE:IEP) have taken a bigger hit this year, down 14.5% at around $74.40 a share. However, Icahn’s recent investment in Xerox may help turn things around for the billionaire.
Is Xerox an Undervalued Opportunity?
On November 23, Icahn disclosed a 7.1% stake in Xerox, a company he called “undervalued.” This makes him the second-largest investor in Xerox after Vanguard Inc., which has an 8.37% stake in the company. (Source: “Carl Icahn Picks 7.1% of Xerox, Says It’s Undervalued,” Venture Capital Post, November 25, 2015.)
Naturally, this triggered a rise in the price of XRX stock. Shares in Xerox rose more than seven percent in afterhours trading Monday. After exchanging hands at $11.02 per share, Xerox is currently trading near $10.60.
Chart courtesy of www.StockCharts.com
Is Xerox stock truly undervalued or does it deserve the 23% drop year-to-date? If you’re an analyst who monitors stocks and hasn’t made billions off your own investing advice, Xerox seems like an odd play. But if you’re Carl Icahn, a self-made billionaire, it’s an opportunity.
Icahn said he will make efforts to improve the operational performance of the company and offer strategic alternatives. He also wants a seat on the board. The main reason for his interest in Xerox was the steep drop in the company’s share price.
While Icahn clearly sees upside potential, not everyone can. As one analyst noted from behind his desk, “I like Icahn. He has done well but I just don’t know what he can do here.”
There’s lots Icahn can push for. He had earlier success helping lead the spinoff of PayPal Holdings, Inc. from eBay Inc. in July. PayPal is now valued at $45.0 billion, while eBay has a valuation of $34.0 billion. (Source: “Icahn Exits eBay Stake,” CNBC, November 16, 2015.)
Icahn has since sold off his stake in eBay, but he held onto a nearly four percent ownership in PayPal as of the end of September. The man knows an opportunity when he sees it and he must see similar opportunities with Xerox.
Icahn could press for a number of things, including selling Xerox’s stake in its joint venture with Fuji Xerox and separating the company’s IT services business from its documents business.
The company has lots of room for growth. In the third quarter, it posted a net loss of $31.0 million and GAAP revenue of $4.33 billion, a 10% decrease over the same period in 2014. (Source: “Xerox Reported Third-Quarter 2015 Earnings,” Xerox Corporation, October 26, 2015.)
Now that we have a base line, investors can see what kind of impact Icahn has on Xerox long-term.
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