Starboard reports stake in Colfax, pitches Huntsman and Elanco
This article was first published on Activist Insight Online on October 06, 2021. For more information about the product, click here.
Starboard Value has revealed an investment in Colfax and pitched Huntsman and Elanco Animal Health as investing ideas at the 13D Monitor 2021 Active-Passive Investor Summit.
At Colfax, Starboard is eyeing a recently-announced separation of the company’s fabrication technology segment and medical technology segment. According to Starboard’s analysis, the standalone medical technology segment trades at a lower multiple than its close peers. To close the discount, Starboard said the new company should reduce operating expenses and improve profitability. “With an improved financial profile, we believe that MedTech can trade in-line with peers,” Starboard said. The size of Starboard’s stake in Colfax is unknown.
Colfax was covered as a potential activist target by Activist Insight Vulnerability in November 2018. Its vulnerability score has remained high ever since and it is now in the 86th percentile of companies most likely to face demands over the next nine months.
Colfax announced the separation of its medical technology business and fabrication technology unit in March 2021 following a strategic review. CEO Matt Trerotola said the separation will allow each business to “better capitalize on its distinct opportunities” and unlock “significant value creation potential.” Shares in Colfax were up more than 1.7% midday Wednesday, while the S&P 500 was down 0.7%.
Starboard also unveiled its thesis at chemicals manufacturer Huntsman, in which it recently disclosed an 8.4% stake. The activist criticized the company for not meeting its revenue growth targets and Ebitda margins, despite shifting its business model from commodities to higher-margin polyurethanes products. “Although Huntsman has steadily shifted organizational focus and resources towards its higher-value and more-differentiated businesses, margins remain both volatile and significantly below peers,” Starboard’s presentation read.
The investor said Huntsman should accelerate revenue growth and increase profitability, moves that it hopes will close the discount with peers Eastman Chemical and Celanese.
In a late September note, Goldman Sachs analysts said the company “may consider buying back its own stock,” noting management was aware that Huntsman stock trades at lower multiples than its industry peers.
Shares in Huntsman were down 1% midday Wednesday.
Starboard’s third investment pitch at the conference was Elanco Animal Health. The activist noted that Elanco has a similar portfolio profile to its peer Zoetis, yet its margins are much worse. “We believe Elanco has the opportunity to not only enhance margin improvement beyond their current plans but also to execute this improvement at an accelerated pace,” Starboard said. Another activist, Sachem Head Capital Management is also invested in the stock.
Activist Insight Vulnerability profiled Elanco as vulnerable in June 2020, months before Sachem Head revealed a large stake. “Elanco trades at a price-to-sales ratio of 8.2 compared with Zoetis’ 32, according to Activist Insight Vulnerability. This is due to Elanco’s extremely poor profitability and weak free cash flow generation. Elanco has gross margins of 50%, compared with 70% for Zoetis. Meanwhile, Zoetis generates more than $1 billion in free cash annually, while Elanco produces just below $100 million, despite Zoetis having only twice as much revenue,” Activist Insight Vulnerability said at the time.