Over the last 100 years, large U.S. companies would often buy secondary businesses either because it enhanced its current business model or because it didn’t know what else to do with its cash.
In 1976, for instance, oil giant Mobil Oil bought department store chain Montgomery Wards in one of the strangest marriages between two companies. When business divisions are in totally separate industries, there can be calls for a spin-off.
Shareholders and analysts argue that spinoffs of a division can unlock “value” that Wall Street simply isn’t recognizing in a company when it is a part of a larger business.
Spinoffs are not the same as new companies going public, though they sometimes get lumped into the same category. Spinoffs usually have a much longer business history, such as Coach’s (COH) 59 years in business before its IPO, and that can translate into an experienced management team. Financial data can also be easier to come by because its sales and earnings are usually reported as part of a larger conglomerate.
Not all spinoffs move higher out of the gate, but these three spinoffs have seen their shares soar since their parent company set them free. They also have an attractive Zacks Rank and earnings growth.
Let’s take a look at each one: