Goldman Sachs is predicting another busy year ahead for corporate spinoffs as management teams look to boost profits and shareholder value in a tough economic environment. That’s good news for investors who know what to look for in the new companies that will be created by this activity. Spinoff stocks have tended to outperform their parent companies, according to David Kostin, Goldman’s chief U.S. equity strategist, who has studied the performance of these types of transactions from 1999 to 2020 . However, not every spinoff knocks it out of the park. That’s why Kostin’s work identified three attributes that have tended to signal an increased likelihood of success. Relative to its parent, the spun-off business needs to have lower forward price-earnings, a lower expected per-share earnings growth rate or lower expected margins, his research found. If it had a combination of these factors, even better. In a research note published last week, Kostin updated that study to look at the track records of more recent spinoffs, completed over the past two years. “Since 1999, the median SpinCo meeting all three of the above criteria outperformed its Parent by 18 [percentage points] (65% hit rate of outperformance) during the 12 months following the spinoff,” Kostin wrote. “However, while 11 of the 20 spinoffs completed during 2022 outperformed the S & P 500 since transaction completion, only six of the spinoffs outperformed their parent entities.” A deal-filled year In 2022, the number of spinoffs rose 33% from the prior year — the second highest total on record — even though the value of those deals was lower than in 2021, Goldman said. There were 20 spinoffs that were completed last year, totaling $61 billion in market value. Another 24 transactions have been announced, and are still pending. GEHC YTD mountain GE Healthcare’s stock has been trending upward since the start of the year. The largest completed deal in 2022 was General Electric’ s spin off of GE HealthCare , a $26 billion business. GE still plans to spin off its energy and aviation businesses as part of a broader multiyear restructuring of its operations. On a when-issued basis, GE HealthCare’s deal was complete on Dec. 15, though it didn’t begin trading publicly until Jan. 4. At the time of Kostin’s updated review, the health-care business was underperforming GE stock. However, GE HealthCare shares have been trending upward. The stock has gained more than 24% since the start of the year. The…
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