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Activist threat: Why these five companies could come under attack



Data storage giant Western Digital, private-label food producer TreeHouse Foods and tire manufacturer Goodyear are all vulnerable to an attack by activist investors, according to shareholder-activism intelligence firm Activist Insight.

Aluminum producer and mining heavyweight Alcoa and the boat group Brunswick may also be subjected to an activist campaign, the second part of a MarketWatch report by the research firm may reveal.

The company, which analyzes financial data, corporate governance and shareholder records of companies to determine if they are vulnerable to becoming activist targets, has compiled a 10-strong list.

The results are compared to peers and broad indexes, such as the S&P 500

SPX, -0.40%

and analysts provide additional context related to the sector.

Typically, when an activist investor gets involved, a stock rises. In 2018, Activist Insight highlighted 76 companies that are under threat; of the 16 have already been targeted by an activist, including Papa John's.

PZZA, -1.04%

The pizza company made a $ 200 million investment from Starboard Value earlier this year and made head of the activist hedge fund as chairman.

The last five companies identified as vulnerable to shareholder activism are:

Western Digital

Data Storage Company Stock

WDC, -1.31%

has risen 54% so far in 2019, rising after competing Micron's better results than expected.

Western Digital's fourth-quarter earnings outperformed forecasts, but revenue was missing as flash memory demand declined.

CEO Steve Milligan last month said that the flash memory market had reached a cyclically low and expected stronger demand.

The company faces fierce competition from cloud-based products, although it has developed its own hybrid cloud systems.

Also see: Sell the Western Digital stock because it has gone too far, says analyst

Activist Insight highlighted a poor five-year total shareholder return of -33% compared to 60% for the S&P 500. [19659002] An activist can push to change a strategy or a series of cost-saving measures to increase profitability or even seek a merger or sale.

Goodyear Tire & Rubber

The tire manufacturer's stock has plunged 43% so far today as the company's sales have gone in reverse amid a challenging worldwide automotive environment.

US's ongoing threat – China's trade war and fear of an automatic decline have hit car parts suppliers hard in 2019.

Goodyear

GT, -2.37%

has begun to streamline its German factories in an effort to increase revenue in the coming years.

Five-year total return on shareholders of -49% also falls well below the S&P 500 average of 63%.

Activist shareholders may require a cost-saving program or even call for a strategic alternative process aimed at selling the company.

TreeHouse Foods

Manufacturer of private label foods

THS, + 0.30%

is midway through a restructuring program aimed at reducing costs and adjusting business.

The food and beverage manufacturer's Ebitda margins have fallen in recent years from 10.7% in 2016 to 8.9% last year.

Total shareholder return over the last five years of -37% compared poorly with an average of 19%.

Earlier this month, the company completed the sale of its underperforming snack business to private equity firm Atlas Holdings for $ 90 million.

CEO Steve Oakland said the sale will be used to pay down debt and create a "healthier" margin structure.

Activists may call for more aggressive cost cuts to improve margins or a strategic review, while further property sales and share buybacks may also be on the wish list, Activist Insight said.

Alcoa

Despite efforts to detach the industrial structure of the industrial company – spinning Arconic

ARNC, -0.92%

in 2016 – Alcoa remains composed.

Arconic was spun off in part due to pressure from activist investor Elliott Management and has recently unveiled plans to split into two. [19659002] Alcoa

AA, -1.94%

the world's eighth largest aluminum producer, has a number of units doing business between itself and external customers, which Activist Insight says creates financial conflicts and confusion over profitability and the company's outlook.

It is also underestimated compared to its American mining counterparts, with a price to earnings ratio of 4.6 against the peers average of 6.26.

Read: Alcoa posts narrower than expected Q2 loss

Activists can push for further simplification of Alcoa's structure, separate bauxite mining and aluminum production operations from the aluminum smelting unit and sell its energy production operations.

Brunswick

Boat stocks have come into choppy waters recently, hit by bad weather and turbulent economic conditions.

Brunswick & # 39; s

BC, -1.85%

Marine engine unit margins – 15.5% last year – as opposed to boat operations – 7% in 2018.

Five year total shareholder return of 13% falls below the average age of 47%, which may tempt an activist to ask for improvement.

Brunswick announced a cost-cutting plan to accelerate 9% of the global workforce – about 400 employees – last month.

Random activist Lakewood Capital Management owns a 3.4% stake in the company.

Activist Insight said that although there may be synergies between the two, Brunswick's boat and marine engine segments should be shared.

Specialist boat builders, such as Malibu Boats, have outperformed Brunswick and a split could allow them to refocus.

Other underperforming brands from its wealth of businesses can be sold, while cost cuts to improve profitability may also be on an activist's radar.

In a statement to MarketWatch, the company said: “Our integrated engine lathe of engines, parts and accessories, and Boats, including the continued expansion of our marine services business through the acquisition of the Freedom Boat Club, positions Brunswick in a unique way to leverage today's and emerging trends in the maritime leisure market to deliver more value to our customers and shareholders. ”

Activist Insight, the provider of shareholder activism intelligence, has identified these US companies as vulnerable to shareholder activism through the proprietary tool Activist Insight Vulnerability and its internal journalists and analysts.


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