$2 billion Texas Medicaid lawsuit against Conduent going to jury in November and is NOT priced in; similar recent lawsuits suggest Conduent likely to settle for ~$500M+.
Conduent (CNDT) is a low-quality, low-moat business process outsourcing company that has captured the imagination of event-driven investors since its spin from Xerox (NYSE:XRX) in January 2017. In many ways, Conduent is an event-investor’s dream, with its promise of new management executing on a turnaround after years of ownership under a dysfunctional parent. However, every piece of the Conduent “bull case” is falling apart, creating an attractive opportunity to short Conduent before its notoriously flighty event-driven owners stampede for the exits.
We see many parallels between Conduent and former event-driven darling Adient (ADNT). Adient, like Conduent, was spun out of a train wreck of an organization and is in a low-quality and commoditized industry. In both cases, transient investor bases were drawn to the standard spin-off narrative of “operational improvement hope”, resulting in investors irrationally falling in love with these companies that are both in notoriously awful industries. In the case of Adient, as the “hopium” high wore off and reality set in, the company’s shares have fallen almost 40% this year. We see a similar outcome for Conduent in the next few months as event-driven investors who are high on “hope” reset expectations and recognize that they have irrationally bid up a portfolio of junk contracts to a 20x P/E multiple.
See Seeking Alpha for full story.