3 Spinoffs That Could Pay Off for Investors
Investors looking for opportunities in the spinoff market--and among parents of spinoffs--might want to investigate these three companies, according to analysts:
* Chicago Title (ticker: CTZ; Wednesday close: $33.50): This 1998 spinoff from Alleghany is down nearly 30% this year and hovering near its all-time low. “But it’s a great business,” said Joseph Cornell, president of Chicago-based Spin-Off Advisors. The title insurer has 20% of its market, no debt, pays a healthy 4% dividend yield and sells for about three times per-share cash flow, he said. “I keep scratching my head. This is a no-brainer.”
* Jefferies Group (JEF; $37.94): The Los Angeles brokerage in April will spin off the rest of its Investment Technology Group, which has developed an electronic stock trading network to compete with Reuters’ private Instinet. “If you do the math and factor out ITGI [the spinoff’s ticker symbol], Jefferies is trading at a discount to its book value,” said Cornell. “Its peers are getting 1.5 times book value. Both pieces should do well after the spinoff, but Jefferies looks cheap now.”
* Varian Associates (VAR; $32.06): This Palo Alto-based company plans to split its three units--medical systems, analytical instruments and semiconductors--into separate businesses in early April. “Based on our calculations, if you buy the parent company today, you’re basically getting the semiconductor business for free,” said Barbara Goodstein, senior vice president and spinoff analyst at Rothschild Inc. in New York. “There’s not a lot of downside.” She and Cornell both estimate the value of the combined units at more than $50 a share.
