Founder at Stock Spin-off Investing, Stock Spin-Off Investing

Richard Howe

Founder at Stock Spin-off Investing

Stock Spin-Off Investing

Generate attractive returns by taking advantage of inefficiencies in the stock spin-off market.

Stock Spin-offs

Event-Driven

<ul>
<li>Small caps generally trade between a 50% discount to the S&amp;P 500 and a 50% premium. The current discount is 22%.</li>
<li>Relative periods of outperformance tend to last for waves of at least 13 years.</li>
<li>The current dominance of large caps over small caps has lasted ~13 years. This suggests the cycle could be due to change.</li>
</ul>


Small caps generally trade between a 50% discount to the S&amp;P 500 and a 50% premium. The current discount is 22%.
Relative periods of outperformance tend to last for waves of at least 13 years.
The current dominance of large caps over small caps has lasted ~13 years. This suggests the cycle could be due to change.


<ul>
<li>Honeywell International (HON) announced its plan to spin off its Advanced Materials business on October 8, 2024.</li>
<li>Subsequently, on February 6, 2025, the company revealed its intention to separate into three independent entities by also spinning off its Aerospace and Automation divisions.</li>
<li>Automation (49% of revenue): This segment will concentrate on developing advanced automation technologies.</li>
</ul>


Honeywell International (HON) announced its plan to spin off its Advanced Materials business on October 8, 2024.
Subsequently, on February 6, 2025, the company revealed its intention to separate into three independent entities by also spinning off its Aerospace and Automation divisions.
Automation (49% of revenue): This segment will concentrate on developing advanced automation technologies.


<ul><li>I expect relatively stable revenue in fiscal 2026 (flat to slightly down), barring a macro shock.</li><li>However, with progress on synergies (65% of the $55MM net synergy target expected to be realized in fiscal 2026) and Project CORE (more on this below), I believe adjusted EBITDA and free cash flow will grow.</li><li>I continue to be impressed with the management team. Their focus is on generating cash, shaped by their experience running Berry under several different private equity sponsors (Goldman Sachs, JPMorgan, Apollo).</li></ul>

I expect relatively stable revenue in fiscal 2026 (flat to slightly down), barring a macro shock.However, with progress on synergies (65% of the $55MM net synergy target expected to be realized in fiscal 2026) and Project CORE (more on this below), I believe adjusted EBITDA and free cash flow will grow.I continue to be impressed with the management team. Their focus is on generating cash, shaped by their experience running Berry under several different private equity sponsors (Goldman Sachs, JPMorgan, Apollo).

<ul><li>Aptiv completed the Versigent (VGNT) spin on April 1 and reported Q1 May 5.</li><li>The spin executed cleanly, the thesis is intact, and the stock has sold off putting APTV at $57 against my $83 SOTP target.</li><li>New Aptiv is a focused industrial technology company: Engineered Components (comparable to Amphenol) and Intelligent Systems, which houses Wind River, the OS powering F-35s, satellites, and 5G networks. </li></ul>

Aptiv completed the Versigent (VGNT) spin on April 1 and reported Q1 May 5.The spin executed cleanly, the thesis is intact, and the stock has sold off putting APTV at $57 against my $83 SOTP target.New Aptiv is a focused industrial technology company: Engineered Components (comparable to Amphenol) and Intelligent Systems, which houses Wind River, the OS powering F-35s, satellites, and 5G networks. 

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

Both Energy and Materials have hurriedly advanced within our relative strength rankings over the past several weeks--now ranking #2 and #4, respectively--confirming the widespread patterns visible in the charts of each Sector’s constituents: bottoms and bases.We have highlighted these evolving set-ups over the past year, identifying: improving internals in energy (Aug. 12), then labeling it as a bottom the following week; also, reiterating copper nearly twelve months ago from today, recommending fertilizers (Dec. 13), and reiterating metals &amp; mining stocks (Dec. 18).Given the improving relative strength trends coupled with constructive patterns, we are upgrading both sectors to overweight from market weight.

Both Energy and Materials have hurriedly advanced within our relative strength rankings over the past several weeks--now ranking #2 and #4, respectively--confirming the widespread patterns visible in the charts of each Sector’s constituents: bottoms and bases.We have highlighted these evolving set-ups over the past year, identifying: improving internals in energy (Aug. 12), then labeling it as a bottom the following week; also, reiterating copper nearly twelve months ago from today, recommending fertilizers (Dec. 13), and reiterating metals &amp; mining stocks (Dec. 18).Given the improving relative strength trends coupled with constructive patterns, we are upgrading both sectors to overweight from market weight.

Upgrading U.S. Energy & Materials Sectors to Overweight

United States

Magnera Corporation manufactures and supplies papers and engineered materials. The Company offers composite fibers and airlaid materials for food and beverage applications, personal hygiene products, packaging, and home decor. Magnera serves customers worldwide.

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Magnera (MAGN US)

Weekly Update (WDC, SNDK, MRP, IAC)

Small caps generally trade between a 50% discount to the S&P 500 and a 50% premium. The current discount is 22%. Relative periods of outperformance...

Richard Howe

Weekly Update (MRP, WDC, HON, LGFA)

Honeywell International (HON) announced its plan to spin off its Advanced Materials business on October 8, 2024. Subsequently, on February 6, 2025,...

Richard Howe

Q&A with Magnera IR

I expect relatively stable revenue in fiscal 2026 (flat to slightly down), barring a macro shock. However, with progress on synergies...

Richard Howe

Weekly Update (APTV, VGNT, Earnings!)

Aptiv completed the Versigent (VGNT) spin on April 1 and reported Q1 May 5. The spin executed cleanly, the thesis is intact, and the stock has sold...

Richard Howe

Upgrading U.S. Energy & Materials Sectors to Overweight

Both Energy and Materials have hurriedly advanced within our relative strength rankings over the past several weeks--now ranking #2 and #4,...

Vermilion Research

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