Investor Carl Icahn may have sights not only on a new company, but an industry. Earlier this week, Icahn disclosed a 9.8% stake in truck maker Navistar (NYSE:NAV). This announcement follows an earlier disclosure that Icahn had taken a stake in trucking and defense company Oshkosh (NYSE:OSK).
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Down in the Dumps
The recession of 2008 hit the trucking industry particularly hard. Trucking fleet utilization fell through the floor when the economy slowed down. High fuel prices didn't help things either. While parts of the economy may have improved since that time, trucking operations are still down in the dumps. Valuations appear to reflect any lack of investor optimism. Navistar currently trades at about 2 times current earnings and 6 times forward earnings; Oshkosh, at a trailing and forward price to earnings (forward P/E) of 4.7 and 9.6 respectively. Truck makers like NAV and OSK are suffering as trucking order rates show little growth, and investors worry that Oshkosh's defense business will suffer as defense spending drops due to U.S. budget reductions. (For related reading, see P/E Ratio: What Is It?)
Icahn has given no indication what his intent is now since he invested in both companies. With some related businesses, some type of consolidation, or joint venture, may make sense. Last week, small-cap trucking company Celadon (NYSE:CGI), a $228 million company providing trucking services in the U.S and Mexico, disclosed a stake in smaller rival USA Truck (Nasdaq:USAK). Celadon acquired 6.3% of the shares of USA Truck, and is interested in meeting with management in combining the two companies. News of the Celadon stake sent shares of CGI and USAK up, a rare occurrence in the world of mergers and acquisitions (M&A), and a sign that consolidation may be good for the industry. (To see how M&A affect valuations, read Mergers and Acquisitions: Valuation Matters.)
The Bottom Line
To a long-term investor, trucking companies appears cheap. Lack of growth has sent investors looking elsewhere for gains. Icahn's positions could be nothing more than the purchase of undervalued businesses. Whatever the reason, the interest in the businesses and the industry is worth a closer look.
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