Letting the spinning continue.
After a year in which U.S. companies announced 44 spinoffs and completed 20 — including General Electric’s
spinoff of its healthcare unit, and Intel’s
spinoff of Mobileye Global
— analysts at Goldman Sachs expect more transactions in 2023.
“Below-trend economic growth coupled with investor focus on corporate profitability means managements should consider spinoffs as a strategy to lift margins and create shareholder value,” said strategists led by David Kostin in a note to clients.
Since 1999, spinoffs outperform their parents by a median 4 percentage points over the following 12 months, the Goldman research finds.
In 2021, these spinoffs outperformed their parent by 3 points, with the best performing being Sylvamo’s
outperformance of International Paper
and the worst being Kyndryl’s
underperformance of IBM
The Goldman team say there are three attributes that are associated with better spinoff returns: lower forward price-to-earnings multiples, lower expected earnings per share growth, and lower projected net margins. When spinoffs meet all three of those criteria, they see a median outperformance of 18 percentage points over the next 12 months.