Carl Icahn has been on quite a roll recently. He slapped down Bill Ackman in an infamous shouting match about Herbalife (NYSE:HLF) on CNBC (and has a nice profit on his Herbalife position as well). He scored a huge win on his Netflix (NASDAQ:NFLX) stake in the first quarter as the stock went parabolic on the success of "House of Cards" and other catalysts. Lately, the well-known activist has taken a big position in Nuance Communications (NASDAQ:NUAN), which I detailed the other day, and I believe his stake will also become a winner as the shares are undervalued. He is also right in the middle of the fight to take Dell (NASDAQ:DELL) private. Finally Carl Icahn has gotten serious in unlocking shareholder value in his stake in large driller Transocean (NYSE:RIG). His proposal to shareholders of the oil services stock is to increase the dividend to $4 a share and replace three of the current directors of the company with his nominees. This would be a significant increase to the company's proposal for $2.24 a share. At the current stock price, this would provide a 8% dividend yield.
I do not know if Icahn will get his proposals approved, and it is probably unlikely. However, Icahn has shown time and time again that he is one stubborn activist. He will continue to agitate to unlock shareholder value until stockholders are given a better value proposition on their stock holdings in Transocean. Even without Icahn's activism, the shares are undervalued and the company has some of its own catalysts.
5 reasons RIG is undervalued at $50 a share:
- It is most of the way through a three year journey of litigation caused by the Gulf Oil spill in 2013. It has pretty much put the ramifications from a recent spill behind it. It should be free of this mess by 2014.
- Even if Icahn's proposal is not approved to increase the payout to $4 a share, the company's proposed dividend will take the stock's yield up to 4.5%.
- The company is projected to grow revenues over the next two years at around a 8.5% CAGR, and stock sports a minuscule five year projected PEG (.41).
- The stock is selling at approximately 9.5x 2014's projected earnings. The 31 analysts that cover the stock have a $60 median price target on RIG.
- RIG is cheap at just 14% over book value and less than 7x current operating cash flow.