ValueAct Capital, the activist hedge fund headed by Jeffrey Ubben, increased its stockholdings in Rockwell Collins, Inc. (NYSE:COL) to 13.1 million shares, or 9.7 percent of the total outstanding shares of the company.

Rockwell Collins logo

Rockwell Collins, Inc. (NYSE:COL) supplies equipments for airplane manufacturers and it specializes in flight deck avionics, cabin electronics, mission communication, information management, simulation and training for the aerospace and defense industries.

Rockwell Collins ValueAct’s 5th largest position

Currently, ValueAct Capital’s fifth largest position in its portfolio is Rockwell Collins, Inc (NYSE:COL). Its four other large investments include Microsoft Corporation (NASDAQ:MSFT), Motorola Solutions Inc (NYSE:MSI), Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX), and Adobe Systems Incorporated (NASDAQ:ADBE).

ValueAct Capital purchased its additional stake in Rockwell Collins, Inc. (NYSE:COL) between August 8 and September 26 at a price range of $69 to $75 per share. It looks like the activist hedge fund took the opportunity to boost its stake in the company when the stock declined prompted by analyst downgrades.

Rockwell Collins rating/price target reduced

Credit Suisse analysts reduced its rating and price target for Rockwell Collins, Inc. (NYSE:COL) from outperform to neutral and from $78 to $68 per share, respectively. The research firm downgraded the stock because it believed that the company would endure the transition between the downside of its defense business and the upside of its commercial original equipment business next year. The company is in the middle of its plan to concentrate its business in commercial plane makers and shift away from defense contractors.

Rockwell Collins to acquire ARINC

In addition, Credit Suisse, in a recent transaction of Rockwell Collins Inc (NYSE:COL) to acquire ARINC, an aviation information management company for $1.39 billion, might led the company to divert its cash away from a potential shares buyback.

On the other hand, Ubben believed that ARINC is a high-quality commercial property and Wall Street’s sell side misses the real story on Rockwell Collins, Inc. (NYSE:COL). According to him, the deal was termed “diluted” due to poor communication during the company’s conference call. Ubben explained that the transaction would enhance the Rockwell Collins’ cash earnings per share. He estimated that the commercial business of the company will improve by 45 percent to 55 percent.

Ubben explained that it is important to enhance the avionics business of Rockwell Collins, Inc. (NYSE:COL) because it provides pricing power, which generates high margins and free cash flow.