5 Recent Spin-off Companies That Hedge Funds Are Piling Into

In this article, we discuss 5 recent spin-off companies that hedge funds are piling into. If you want to see more stocks in this selection, check out 10 Recent Spin-off Companies That Hedge Funds Are Piling Into. 

5. ESAB Corporation (NYSE:ESAB)

Number of Hedge Fund Holders: 24

ESAB Corporation (NYSE:ESAB) is a Maryland-based company that specializes in producing and providing consumables and equipment for cutting, joining, and automated welding, as well as gas control equipment. On April 5, Enovis Corporation (NYSE:ENOV), a medical tech company driven by innovation, announced the finalization of its previously announced spinoff of its fabrication technology segment into a standalone, publicly traded firm, ESAB Corporation (NYSE:ESAB).

On January 12, ESAB Corporation (NYSE:ESAB) was named as one of the top stock picks in the machinery industry by analysts at JPMorgan. The investment firm noted that ESAB Corporation (NYSE:ESAB) is trading at a discount to its bigger counterpart, Lincoln Electric Holdings, Inc. (NASDAQ:LECO). 

According to Insider Monkey’s data, ESAB Corporation (NYSE:ESAB) is one of the best spin-off stocks, given that hedge funds are piling into the company. At the end of Q3 2022, 24 hedge funds were bullish on ESAB Corporation (NYSE:ESAB), up from 19 in the prior quarter. 

Diamond Hill Capital made the following comment about ESAB Corporation (NYSE:ESAB) in its Q4 2022 investor letter:

“Other top contributors included Enstar, ESAB Corporation (NYSE:ESAB) and Taseko Mines. Shares of runoff consolidator Enstar bounced back from a tough Q3. Enstar buys other companies’ non-core business lines and efficiently settles claims until the liabilities are exhausted. It has a proven ability to compound value over time and create value across cycles, and we believe it can continue to do so. Similarly, shares of fabrication technology company ESAB rebounded from a challenging Q3 as the business has fared better than feared amid a slowing macroeconomic environment — especially in Europe, where ESAB is the leader in welding.”

4. BellRing Brands, Inc. (NYSE:BRBR)

Number of Hedge Fund Holders: 26

BellRing Brands, Inc. (NYSE:BRBR) provides nutrition products including ready-to-drink protein shakes, protein powders, and nutrition bars in the United States and internationally. On March 10, Post Holdings, Inc. (NYSE:POST) completed the spinoff of 80.1% of its interest in BellRing Brands, Inc. (NYSE:BRBR). BellRing common stock now trades on the New York Stock Exchange. It is one of the best spin-off stocks that hedge funds are picking up. On December 5, BellRing Brands, Inc. (NYSE:BRBR) approved a new $50 million share repurchase authorization, with share repurchases under the new authorization beginning on December 5, 2022.

On December 20, Morgan Stanley analyst Pamela Kaufman raised the price target on BellRing Brands, Inc. (NYSE:BRBR) to $29 from $28 and kept an Overweight rating on the shares. The analyst believes that the continued defensive market stance and steady fundamentals will sustain the packaged food sector’s relative outperformance in 2023.

According to Insider Monkey’s data, 26 hedge funds were bullish on BellRing Brands, Inc. (NYSE:BRBR) at the end of the third quarter of 2022, with combined stakes worth $501.2 million. 

3. Enhabit, Inc. (NYSE:EHAB)

Number of Hedge Fund Holders: 29

Enhabit, Inc. (NYSE:EHAB) is a Texas-based company that provides home health and hospice services in the United States. On July 1, Encompass Health Corporation (NYSE:EHC) announced that it has completed the spin-off of 100% of Enhabit, Inc. (NYSE:EHAB), its home health and hospice business. It is one of the top spin-off stocks on the radar of smart investors. 

On December 5, Stifel analyst Tao Qiu started coverage of Enhabit, Inc. (NYSE:EHAB) with a Buy rating and a $17 price target. The company has established itself as a top provider in 17 states by acquiring and starting new operations, becoming the fourth largest provider of skilled home health services, the analyst informed investors. 

According to Insider Monkey’s data, 29 hedge funds were bullish on Enhabit, Inc. (NYSE:EHAB) at the end of September 2022, compared to 3 funds in the prior quarter. The collective stakes in Q3 2022 came in $171 million, up from $711,000. 

Aristotle Capital made the following comment about Enhabit, Inc. (NYSE:EHAB) in its Q3 2022 investor letter:

“Enhabit, Inc. (NYSE:EHAB), a provider of home health and hospice services, was added to the portfolio by virtue of its spin-off from existing holding Encompass Health. We maintain a position, as we believe the company should benefit from aging demographic trends that can increase demand for the company’s services.”

2. Constellation Energy Corporation (NASDAQ:CEG)

Number of Hedge Fund Holders: 54

Constellation Energy Corporation (NASDAQ:CEG) generates and sells electricity in the United States. The company operates through five segments – Mid-Atlantic, Midwest, New York, ERCOT, and Other Power Regions. On February 1, Exelon Corporation (NASDAQ:EXC) completed the tax-free spinoff of Constellation Energy Corporation (NASDAQ:CEG). 

On January 17, RBC Capital analyst Shelby Tucker downgraded Constellation Energy Corporation (NASDAQ:CEG) to Sector Perform from Outperform with a price target of $91, up from $88. Although the investment story remains interesting, the analyst believes there may be a temporary slowdown as Constellation Energy Corporation (NASDAQ:CEG)’s management refines its growth strategy. The updated valuation model includes the possibility of clean hydrogen production, but the analyst does not anticipate a significant impact on cash flows until 2027.

According to Insider Monkey’s data, Constellation Energy Corporation (NASDAQ:CEG) was part of 54 hedge fund portfolios at the end of Q3 2022, compared to 43 in the prior quarter. John Smith Clark’s Southpoint Capital Advisors is the largest stakeholder of the company, with 3.50 million shares worth $291 million. 

Alger Capital made the following comment about Constellation Energy Corporation (NASDAQ:CEG) in its Q3 2022 investor letter:

“Constellation Energy Corporation (NASDAQ:CEG) is America’s leading clean energy company, based on carbon-free production. The company is the largest supplier of clean energy and sustainable solutions to homes, businesses, governments, community aggregations, and a range of wholesale customers (such as municipalities, cooperatives, and other end markets) across the continental U.S., backed by approximately 32,400 megawatts of generating capacity consisting of nuclear, wind, solar, natural gas and hydroelectric assets. Constellation produces nearly 10% of the nation’s carbon-free energy.

Shares outperformed during the third quarter primarily due to the Inflation Reduction Act (IRA). Signed into law in august, the bill provides a nuclear production tax credit of approximately $43.75 per megawatt hour of energy generated. This credit favorably impacted earnings, resulting in an increase in Constellation’s share price.”

1. Warner Bros. Discovery, Inc. (NASDAQ:WBD)

Number of Hedge Fund Holders: 61

Warner Bros. Discovery, Inc. (NASDAQ:WBD) is a New York-based media company that produces, develops, and distributes feature films, television, gaming, and other content through basic networks, direct-to-consumer channels, and games licensing. The company was formed after the spinoff of WarnerMedia by AT&T Inc. (NYSE:T), and its merger with Discovery, Inc. on April 8. It is one of the spinoff stocks that hedge funds are picking up.

On January 24, Atlantic Equities analyst Hamilton Faber reiterated an Overweight rating on Warner Bros. Discovery, Inc. (NASDAQ:WBD), stating that a merger between the two direct-to-consumer services, HBO Max and Discovery+, could result in revenue neutrality. The firm’s analysis suggests that there is 80% potential for growth in shares of Warner Bros. Discovery, Inc. (NASDAQ:WBD) from current levels, despite the expected loss of 4 million subscribers who currently use both services and 40% of Discovery+ subscribers potentially being unwilling to pay a higher monthly fee. The analyst argues that the increase in average revenue per user for Discovery+ can offset these losses and make the merger revenue neutral. He maintained a $22 target price on Warner Bros. Discovery, Inc. (NASDAQ:WBD) shares. 

According to Insider Monkey’s data, 61 hedge funds were long Warner Bros. Discovery, Inc. (NASDAQ:WBD) at the end of September 2022, compared to 68 in the prior quarter. 

O’keefe Stevens Advisory made the following comment about Warner Bros. Discovery, Inc. (NASDAQ:WBD) in its Q4 2022 investor letter:

“Several positions within the portfolio deserve some reflection; however, the one deserving the most attention is Warner Bros. Discovery, Inc. (NASDAQ:WBD). Not surprisingly, it was one of the worst-performing stocks in our portfolio over the past year.

Warner Brothers Discovery (WBD) – One concept learned from Jeremy Raper at Raper Capital (@Puppyeh1 on Twitter) is “when there’s a massive pivot in biz model and under-delivery vs. clear IPO targets, it’s generally a big red flag.” While WBD is not a recent IPO, it went through a dramatic business model change. I recall two examples of companies that pivoted strategies…” (Click here to read the full text)

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