Are These Spinoffs Better Bets Than Their Parents?– ConocoPhillips (COP)

Spinoffs have been a big theme over the last six months as more companies try to maximize shareholder value. Some of these have outperformed their parents. Big cap companies like Pfizer Inc. (NYSE:PFE), ConocoPhillips (NYSE:COP), Sears Holdings Corporation (NASDAQ:SHLD), and Abbott Laboratories (NYSE:ABT) all spun off divisions.  Zoetis Inc (NYSE:ZTS), Phillips 66 (NYSE:PSX), Sears Hometown and Outlet Stores Inc (NASDAQ:SHOS), and AbbVie Inc (NYSE:ABBV) have done fairly well since their IPOs.

AbbVie is up 10% in less than a month. Phillips 66 has been a monster doubling since its May IPO. Sears Hometown has run from $28.00 to $44.00 since October and Zoetis only debuted less than 10 days ago and is up over 25% from its IPO pricing at $26.

Better Bets?

The operative word here is bet because even if there are figures for a spinoff’s revenues when it was under its parents’ wing new numbers are hard to come by just like any IPO. Spinoffs should be treated as speculative until they have at least a few earnings releases under their belt.

What’s nice about spinoffs is that some of them come with yield which doesn’t happen with most IPOs. And some still have good relationships with their ‘rents who are willing to slip them a few bucks if need be or help them out as they begin their new lives.

Phillips 66 has been the best performer of the bunch but it’s also the oldest and trades at a 9.89 P/E with a 1.90% yield. It goes ex-dividend on February 18, if you’re interested. Parent ConocoPhillips, the major integrated oil company may be the better longer term investment with a 4.50% yield and a lower P/E of 8.92 just for the yield alone.

But Phillips 66 has a PEG under 1 at .82 and it’s a big boy with a $40.12 billion market cap. It’s actually larger than its two main competitors Marathon and Valero. It operates 15 refineries with a capacity of over 2 million crude oil barrels a day among many other oil and gas related projects. Its earnings have been good, but analysts are only seeing 10.78% five year growth (yoy).

Then there’s Sears Hometown and Outlet Stores, much the better proposition than parent Sears Holdings. The market hasn’t made a big fuss over this name since they were spun off in October. Maybe they should with the Q3 2012 earnings release on November 30 that reported a 27% increase in operating income, same store sales numbers up 3%, and a rise in EPS from $0.29 earnings per diluted share to $0.38 earnings per diluted share. In the same timeframe parent Sears Holdings reported a loss…again. This time $4.70 a share.

Sears Hometown is the outlet for Sears and has 126 stores that resell Sears merchandise at discounts and parent Sears allows them to sell back merchandise that hasn’t moved. Some hardware and Hometown stores are franchised. The most respected Sears brands are available at these stores including: Craftsman, Diehard, and Kenmore appliances. All in all it’s a pretty sweet deal for Sears Hometown and its shareholders. Sears Hometown trades at a 17.40 P/E. It trades less than 100,000 shares a day but expect that to climb as the good news about Sears Hometown gets out.