We recently published a list of 10 Best Spin Off Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Madison Square Garden Entertainment Corp. (NYSE:MSGE) stands against the other spin off stocks.
A corporate spinoff is defined simply as a firm deciding to split a portion of its operations and distribute the shares to its shareholders. However, the rationale for a spinoff is significantly more complicated, ranging from financial or legal causes to competing strategic agendas. According to historical data, spinoffs and parents both generally outperform the market, with spin-offs having an advantage. A widely referenced research in The Journal of Financial Economics discovered “significantly positive” returns for both spin-offs and their parent company during the three years following separation when compared to the market as a whole. Moreover, multiple pieces of evidence back up the data. For example, the Invesco S&P Spinoff ETF, which contains companies spun out from larger corporations in the last four years, returned 74.44% in the last five years.
According to Bloomberg BNN, shares in companies split out from existing organizations beat the S&P 500 by an average of 10% over the next 18-24 months. Meanwhile, the companies that remain after the split perform in line with the S&P 500 for the year after the spinoff closure date. The pace of spinoffs in the United States is expected to quicken in 2025, owing to a string of recent successful spinoffs and growing pressure from activist investors. Speaking on this, Adam Parker, founder of Trivariate Research, stated the following:
“The strong performance of spinoff companies can serve as a barometer for management teams who are looking for successful ways to unlock value.”
For example, Honeywell, a corporation located in North Carolina that specializes in aircraft, building automation, and industrial automation, has revealed plans to split into three entities in order to increase stock returns. It intends to split its automation and aerospace technologies businesses by the second half of 2026, as well as complete the spin-off of its advanced materials segment. Elliott Investment Management, an activist investor, asked for the split last October, anticipating that it could “push the stock up 51% to 75% over the next two years.” Similarly, other firms are also in the process of disassembling themselves. DuPont is to spin off its electronics unit by the end of 2025, resulting in two separate firms, while car components manufacturer Aptiv is also splitting into two.
Our Methodology
For this list, we scoured Insider Monkey’s database of 1008 elite hedge funds’ holdings as of the end of the fourth quarter of 2024 and selected the top ten firms spun out in the previous four years that were popular among hedge fund investors. The list is ordered in increasing order by the number of hedge fund holdings in each business.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Stagehands setting up the equipment for a live entertainment event.
Madison Square Garden Entertainment Corp. (NYSE:MSGE)
Number of Hedge Fund Holders: 35
Madison Square Garden Entertainment Corp. (NYSE:MSGE), a spinoff of Sphere Entertainment Co., is a live entertainment firm that produces concerts and show event entertainment experiences at well-known venues such as Radio City Music Hall and Madison Square Garden.
Guggenheim analysts maintained their positive outlook on Madison Square Garden Entertainment Corp. (NYSE:MSGE), reaffirming their Buy rating and $48 price target. Despite recent headwinds on the stock’s performance, the firm has selected Madison Square Garden Entertainment as its Best Idea for the calendar year 2025. Guggenheim analysts believe MSGE will still generate near double-digit growth in adjusted operating income (AOI) for 2025.
Ariel Fund stated the following regarding Madison Square Garden Entertainment Corp. (NYSE:MSGE) in its Q4 2024 investor letter:
“Lastly, Madison Square Garden Entertainment Corp. (NYSE:MSGE) underperformed in the quarter. Despite the delivery of strong earnings results, shares traded lower following a reduction to fiscal 2025 adjusted operating income guidance. The revision was driven by unique circumstances surrounding concert tour cancellations and higher costs associated with bringing sponsorship sales in-house. Nonetheless, with marquee assets such as New York’s Madison Square Garden, Radio City Music Hall, Beacon Theatre and The Chicago Theater, we believe MSGE is well positioned to capitalize on strong demand for live entertainment. Additionally, new sales and renewal activity in the company’s hospitality business remains robust. MSGE recently announced multi-year sponsorship deals with Lenovo, its subsidiary Motorola Mobility, the Department of Culture and Tourism-Abu Dhabi, as well as a multi-year extension of its sponsorship deal with Verizon. In our view, MSGE’s portfolio generates stable cash flow that should enable further deleveraging. At current levels, the company is trading at a significant discount to our estimate of private market value.”
Overall, MSGE ranks 6th on our list of the best spin off stocks to buy according to hedge funds. While we acknowledge the potential of MSGE as an investment, our conviction lies in the belief that certain AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MSGE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
