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Why Shares of Knife River Were Moving Higher Today
Key Points
Activist investor Starboard Value sent a letter to Knife River calling for change.
It said returns at the construction company have been unacceptable.
Shares of Knife River Corporation (NYSE: KNF) gained today after activist investor Starboard Value disclosed a position in the construction stock and sent a letter to management calling for the board to consider strategic alternatives, which typically include a sale of the company.
Knife River stock closed up 3.8% on the news today.
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What Starboard said to Knife River
Starboard called Knife River "an exceptional business in a highly attractive industry," though it said it had "failed to realize its potential" and had delivered "unacceptable" returns.
Starboard also observed that Knife River owns approximately 1.3 billion tons of aggregate reserves in local markets, which provide it with barriers to entry and pricing power.
It also noted that the company had underperformed its peer group and that the valuation discount had continued to widen. The activist investor called on the company to execute a credible plan to deliver at least 22% adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) by fiscal 2029. If it can't do that, the board should consider strategic alternatives, it said.
What it means for Knife River
Knife River responded to the letter by saying it would engage with Starboard to "better understand their views." However, it defended its management team and strategy, and said it was focused on improving operational performance and driving profitable growth.
Today's gains in the stock show that investors are pleased with Starboard's entry, and activist investors are typically welcomed to help with struggling stocks. Knife River has fallen sharply over the last three months, setting up an opportunity for Starboard.
The activist investor has had success in the past, so it wouldn't be surprising to see some kind of change come out of its position.
Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.