In this article, we discuss the 11 recent spin-off companies that hedge funds are piling into. To skip the detailed analysis of spin-off companies and their recent performance, go directly to the 5 Recent Spin-off Companies That Hedge Funds Are Piling Into.
A spin-off is a process that involves a company separating a part of its business to create a separate entity. The company then distributes the shares of the spun-off company among its shareholders. There are several reasons a company can opt for a spin-off. Most of the time, it is because a company believes that either spinning off a division would allow the company to focus on its core business or the separate entity will perform better on its own. In some cases, the spin-off can be a win-win for both the parent company and the spun-off company.
One of the examples of successful spin-offs is Abbott Laboratories (NYSE:ABT) splitting off its research-based pharmaceutical manufacturer division into a separate publicly traded company, AbbVie Inc. (NYSE:ABBV). While Abbott Laboratories (NYSE:ABT) was always a fundamentally strong company, AbbVie Inc. (NYSE:ABBV) has become one of the largest pharmaceutical companies in the world by revenue. Since it went public in January 2013, the company's stock is up nearly 350%. Its parent company, Abbott Laboratories (NYSE:ABT), is up nearly 225%.
Activist investors can also push companies toward spin-offs. Keith Meister of Corvex Capital pushed for the spin-off of Yum! Brands, Inc. (NYSE:YUM)’s China division after he acquired the company’s shares in 2015. Carl Icahn’s protege, Meister, believed that the spin-off would unlock the division’s true value. The spin-off was completed in 2016 and created the company, Yum China Holdings, Inc. (NYSE:YUMC). You can read about Keith Meister’s other activist targets in our report, Long-Term Returns of Keith Meister’s Activist Targets.
One of our previous reports suggests that when a spin-off occurs due to activist investors’ pressure, the parent company’s stock gains significantly in most cases. The report also mentions a study that compared the performance of spun-off companies against two benchmarks. The study found that spun-off companies generally outperform their benchmarks in the first 22 months. Furthermore, parent companies generally outperform the benchmarks for the first 15 months.
Performance of Recent Spin-offs
Recent spin-off companies have shown mixed performances. However, the Invesco S&P Spin-Off ETF is ending the year on a positive note with 20.58% year-to-date gains as of December 15. The ETF consists of companies with at least $1 billion in market value that have spun off over the last four years.
Laboratory Corporation of America Holdings (NYSE:LH)’s spin-off, Fortrea Holdings Inc. (NASDAQ:FTRE), has so far shown a positive outcome. Between July 16 and December 15, the spun-off company gained 7.77%, while its parent company experienced an over 9% gain during the same period.
On the other hand, Johnson & Johnson (NYSE:JNJ)’s spin-off, Kenvue Inc. (NYSE:KVUE), is down 20.79% since inception as of the December 15 market close, and the parent company is down 4.62% over the same period. Nevertheless, on December 13, Citi analyst Filippo Falorni opened a “90-day positive catalyst watch” on Kenvue Inc. (NYSE:KVUE) in light of its ongoing Tylenol product liability litigation.
One of the best-performing spin-offs this year has been MDU Resources Group, Inc. (NYSE:MDU)’s construction materials subsidiary, Knife River Corporation (NYSE:KNF). KNF has gained nearly 75.5% between May 31 and December 15. The company’s parent stock has declined by 2.15% during the same period.
The recent spin-offs have also caught the eye of elite hedge funds. Some of the recent spin-off companies that hedge funds are piling into include Kenvue Inc. (NYSE:KVUE), Madison Square Garden Entertainment Corp. (NYSE:MSGE), and Crane NXT, Co. (NYSE:CXT).
11 Recent Spin-off Companies That Hedge Funds Are Piling Into
Pixabay/Public Domain
Our Methodology
For this article, we made a list of companies that have been spun off over the last 22 months. The list was created on December 15. Out of those companies, we picked the ones that had the highest number of hedge fund investors as of Q3. We skipped the companies that experienced a significant decline in hedge fund sentiment between Q2 and Q3. We also excluded partial spin-offs and mergers.
The stocks are listed in ascending order of the number of hedge fund holders in Q3.
Recent Spin-off Companies That Hedge Funds Are Piling Into
Veralto Corporation (NYSE:VLTO) is a Massachusetts-based company that was formed in September 2023 after Danaher Corporation (NYSE:DHR) spun off its environmental and applied solutions segment.
On November 29, Stifel started coverage of Veralto Corporation (NYSE:VLTO)’s stock with a Buy rating and a $82 price target. The analyst mentioned a few attractive points of the company, including its portfolio of businesses with strong brands, strong customer relationships, recurring revenue, and more.
Veralto Corporation (NYSE:VLTO) is one of the recent spin-off companies that hedge funds are piling into along with Kenvue Inc. (NYSE:KVUE), Madison Square Garden Entertainment Corp. (NYSE:MSGE), and Crane NXT, Co. (NYSE:CXT).
In July 2023, Liberty Media Corp (NASDAQ:LMCA) announced the split-off of Atlanta Braves Holdings, Inc. (NASDAQ:BATRA), which is now the owner of Atlanta Braves Major League Baseball Club and Liberty Media Corp (NASDAQ:LMCA)’s associated real estate development project.
On November 3, Atlanta Braves Holdings, Inc. (NASDAQ:BATRA) posted its Q3 earnings result with a non-GAAP EPS of -$0.10, and revenue grew by 11% year-over-year (YoY) to $272 million, topping the analysts’ estimates by $3.2 million.
According to Insider Monkey’s database that tracks 910 elite hedge funds, 11 funds had investments in Atlanta Braves Holdings, Inc. (NASDAQ:BATRA)’s stock in the third quarter, up from 10 in the previous quarter.
Third Avenue Management mentioned Atlanta Braves Holdings, Inc. (NASDAQ:BATRA) in its third quarter 2023 investor letter. Here is what it said:
“LSB Industries (LXU) and the Series C shares of Atlanta Braves Holdings, Inc. (NASDAQ:BATRK) were added to the Fund in the third quarter. The investment theses are discussed below. On July 18th the Atlanta Braves Holdings, Inc. was spun off from the Liberty Media Corporation and began trading on the Nasdaq Stock Market. Consistent with other John Malone controlled entities, the issuance contained multiple share classes. Post IPO, despite equivalent economic value, we noticed a 16% discount between the Series C and Series A common shares. We felt the discrepancy was technical in nature and used it as an opportunity to boost the position size through the Series C shares.”
Vitesse Energy, Inc. (NYSE:VTS)’s spinoff was completed in January 2023 by Jefferies Financial Group Inc. (NYSE:JEF). The energy company owns, acquires, and develops non-operated oil and natural gas properties.
On November 1, Vitesse Energy, Inc. (NYSE:VTS) announced its quarterly dividend of $0.50, payable by December 29 to the shareholders of record on December 15. At the time of writing on December 15, the stock’s dividend yield was 8.65%.
Vitesse Energy, Inc. (NYSE:VTS) was covered by 3 Wall Street analysts in the last three months, and all keep a Buy rating on the stock. The average price target of $28.50 represented an upside of 23.32% at the time of writing December 15.
ZimVie Inc. (NASDAQ:ZIMV) is a spin-off company that was previously Zimmer Biomet Holdings, Inc. (NYSE:ZBH)’s dental and spine business. The company was spun off in March 2022 and is based in Colorado.
On December 12, ZimVie Inc. (NASDAQ:ZIMV) announced that it got FDA clearance for its Vital Spinal Fixation System, including instruments for use with Brainlab’s Spine & Trauma Navigation product. The company expects its Vital sets to be launched in early 2024 in the U.S. market.
Ariel Investments commented on ZimVie Inc. (NASDAQ:ZIMV) in its second-quarter 2023 investor letter. Here is what it said:
“Leading manufacturer and distributor of medical devices specializing in spine and dental products, ZimVie Inc. (NASDAQ:ZIMV, also advanced following a top- and bottom-line earnings beat and subsequent increase in full year guidance. Tailwinds from new product launches and higher than anticipated Spine sales more than offset competitive challenges and the impact of exiting China due to volume[1]based procurement. ZIMV also announced further cost savings initiatives including a 5% reduction in its global workforce. Looking ahead, we believe recent headwinds will soften and expect the management team to continue to focus on research and development, paying down debt, as well as expanding its product portfolio across its core value chain.”
Enhabit, Inc. (NYSE:EHAB) was established in July 2022 after Encompass Health Corporation (NYSE:EHC) spun off its home health and hospice business into an independent company.
On December 12, TD Cowen analyst Ryan Langston initiated coverage of Enhabit, Inc. (NYSE:EHAB)’s stock with a Market Perform rating and a $12 price target.
In the third quarter, the number of hedge funds with a stake in Enhabit, Inc. (NYSE:EHAB).
Enhabit, Inc. (NYSE:EHAB)’s stock went down to 21 from 23, yet the combined stake value increased to $213.978 million in Q3 from Q2’s $204.662 million.
Fortrea Holdings Inc. (NASDAQ:FTRE) is a contract research organization that came into being in July 2023 after it was spun off from Laboratory Corporation of America Holdings (NYSE:LH). The company offers phase I-IV clinical trial management, patient access, and technology solutions.
On November 13, Fortrea Holdings Inc. (NASDAQ:FTRE) posted its Q3 non-GAAP EPS of $0.24 and revenue of $776.4 million which grew 1.8% YoY. For the full year 2023, the company forecasted revenues between $3.075 billion and $3.130 billion and reaffirmed its adjusted EBITDA guidance in the range of $255 million to $285 million.
On December 11, Citi upgraded the rating on Fortrea Holdings Inc. (NASDAQ:FTRE)’s stock to Buy from Neutral and increased the price target to $40 from $34. Based on the company’s attractive valuation as compared to peers, healthy bookings, and improving margin, the firm called it a top pick among contract research organizations and labs.
Kenvue Inc. (NYSE:KVUE), Madison Square Garden Entertainment Corp. (NYSE:MSGE), and Crane NXT, Co. (NYSE:CXT) are a few of the recent spin-off companies that hedge funds are piling into besides Fortrea Holdings Inc. (NASDAQ:FTRE).
