Exclusive: These five U.S. stocks are most vulnerable to an activist attack

Food delivery firm Grubhub, industrial heavyweight 3M and consumer products giant Colgate-Palmolive are all vulnerable targets for activist investors, according to exclusive data.

The trio along with software company Autodesk ADSK, +1.97% and dental equipment manufacturer Dentsply Sirona XRAY, +2.08%  have been identified as possible activism targets in a report for MarketWatch by research firm Activist Insight.

The research firm, which analyses financial data, corporate governance and shareholder registers of companies to determine whether they are vulnerable to becoming an activist target, has produced a ten-strong list.

The results are then compared to peers and broad indices, such as the S&P 500 SPX, +1.48%  , and analysts provide extra context relating to the sector. MarketWatch will reveal the remaining five in coming days.

The research firm has a strong track record in identifying shareholder activism. Typically when an activist investor gets involved, a stock soars. In 2018 Activist Insight highlighted 76 companies under threat, of which 16 have already been targeted by an activist, including Papa John’s PZZA, +0.58%.

The pizza company took a $200 million investment from Starboard Value earlier this year and made the activist hedge fund’s chief executive its chairman.

It also predicted that eBay EBAY, +3.12%   would come under pressure, as it has from Starboard and fellow activist Elliott – founded by billionaire hedge fund manager Paul Singer – eventually agreeing to a strategic review.

The first five companies identified in the report are:

3M

After a slow start to 2019, the industrial conglomerate MMM, +1.71%   restructured its business from five units into four – healthcare, consumer, transportation and electronics, and safety and industrial.

The company, a component of the Dow Jones Industrial Average DJIA, +1.44%,   slashed its full-year guidance by 11% in April and its stock suffered double-digit one-day losses.

Shares have fallen 12.5% over the year, and over the past five years total shareholder return of 40% sits well below 129% for the median peer.

Activist shareholders could push for the company to separate its four business segments – healthcare, consumer, transportation and electronics, and safety and industrial – into two or three companies.

See also: 3M’s business model is broken, analyst says

A shift to focus on healthcare and consumer, ditching industrial and transportation units could help reduce debt.

3M declined to comment.

Dentsply Sirona

Since the merger between Dentsply and Sirona at the beginning of 2016, the newly combined dental giant has suffered losses and struggled to generate revenue growth.

Total shareholder return of 20% over the past five years against 129% for the company’s median peer leave the firm exposed to activism.

Occasional activist Artisan Partners also holds a 7% stake in the company.

The dental equipment manufacturer unveiled a restructuring plan in November – including cost reductions and job cuts – with chief executive Don Casey acknowledging a disappointing 2018.

Last month the dental equipment manufacturer beat earnings expectations in its second quarter results.

Activist Insight said an activist shareholder could push for further cost-cutting measures to return the company to profitability or lobby for share buybacks.

Dentsply Sirona declined to comment.

Grubhub GRUB, -0.30%  

Grubhub’s stock has lost half of its value since peaking in September last year as the company has come under increasing pressure from rivals, including Uber Eats , DoorDash and the now-defunct Amazon Restaurants.

The stock fell further at the end of last month as the company missed earnings expectations and trimmed its full-year outlook.

Revenue and the number of diners using its platform grew but earnings fell 19% as it has been forced to invest to fight off the competition.

The recent £9 billion merger between European giants Just Eat and Takeaway.com highlighted the scope for consolidation in the sector.

Activists could demand a big money merger or sale to boost the company’s fortunes or push for an expansion overseas to keep its growth going.

Grubhub declined to comment.

Autodesk

The design software company reported a surprise first quarter loss of $24 million in May, but still an improvement on a loss of $82 million in the first three months of 2018.

Sales and earnings have steadily fallen over the past four years.

Yet shares have soared 150% in that time as investors continue to back the company’s transition to a subscription-based business model.

Despite the stock’s impressive run, Activist Insight said the company could be vulnerable to attack from an activist investor.

The firm’s five-year total shareholder return of 192% falls significantly below that of its rival Adobe, while the company’s operating expenses to revenue ratio of 57.8% was higher than its peers.

The research firm said an activist could call for costs to be cut to improve profitability or for the $1 billion on Autodesk’s balance sheet to be better used.

Autodesk failed to respond to a request for comment.

Colgate-Palmolive COLG, +2.09%  

The consumer products giant has successfully overcome higher raw materials costs over the past year by hiking prices to boost sales growth.

Rivals Procter & Gamble and Kimberly-Clark have done the same and have both seen sales pick up.

The Colgate toothpaste maker’s second quarter results last month showed a 4% rise in organic sales.

But revenue growth has ultimately declined over the past four years and Activist Insight said shareholders could expect more.

Analysts pointed out that Procter & Gamble was targeted by activist investor Nelson Peltz in 2017 and its stock has risen 30% since, while Colgate Palmolive has edged up 7% over the same period.

An activist could force the company to plough more investment into fast-growing emerging markets to accelerate growth, or even push for a sale to a larger peer or a merger, Activist Insight analysts said.

Colgate-Palmolive failed to respond to a request for comment.

Activist Insight, the provider of shareholder activism intelligence, has identified these U.S. companies as vulnerable to shareholder activism with the help of its proprietary tool Activist Insight Vulnerability and its in-house journalists and analysts.

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