In this article, we discuss 10 recent spin-off companies that hedge funds are piling into.

A spin-off occurs when a company splits off a portion of its business into a separate company and distributes shares of the new entity tax-free to the parent company’s shareholders. The number of shares a shareholder receives is proportional to their holdings in the parent company. In 2022, while the stock market saw a decline and the market for initial public offerings cooled, the activity surrounding corporate spinoffs increased. In various industries, numerous well-known and established companies are spinning off parts of their operations to drive growth, improve returns, and increase shareholder value. Prominent blue-chip companies pursuing spinoffs include General Electric Company (NYSE:GE), Johnson & Johnson (NYSE:JNJ), and 3M Company (NYSE:MMM). 

Spin-off firms typically belong to a separate industry sector compared to the parent company. The parent firm believes that the spin-off can benefit from greater strategic capital allocation, improved ROI, and a more entrepreneurial approach, as it is no longer restricted by the parent company. This allows the parent company to concentrate on its core business with faster growth, and allocate more resources towards it. 

Some spin-offs occur due to activism, as activists push for change. Another factor contributing to the rise in spin-offs is social proof; as more spin-offs are announced, especially within certain industries, boards of directors and CFOs feel pressure to consider similar actions. For example, in the healthcare industry, significant pressure exists to divide the high-return biotech and pharma businesses from the lower-growth but more stable consumer healthcare operations. 

Johnson & Johnson (NYSE:JNJ) recently filed a plan to separate its consumer health division, marking the first significant US IPO filing of the year. According to its filing with the SEC on January 4, the spin-off firm Kenvue Inc. will consist of J&J brands such as Tylenol, Listerine, Neutrogena, and Nicorette. The filing comes after a lackluster year for US IPOs, which saw the lowest amount raised since the financial crisis in 2009. After reaching a record high of $339 billion in 2021, the number of IPO listings on US exchanges declined to $24 billion in 2022, as per Bloomberg data. The Kenvue filing could be the major IPO event this year and if it proves successful, it could indicate that the IPO market is recovering from uncertainty, inflation, and the ongoing impact of the COVID-19 pandemic and the conflict in Ukraine. Goldman Sachs Group Inc. and JPMorgan Chase & Co. are leading the IPO. Kenvue intends for its shares to be listed on the NYSE under the ticker symbol KVUE.

Our Methodology 

We scanned Insider Monkey’s database of holdings of 920 elite hedge funds tracked as of the end of the third quarter of 2022 and picked the top 10 companies that were spun off in 2022 and were popular among smart investors. The list is arranged in ascending order of the number of hedge fund holders in each firm. 

Recent Spin-off Companies That Hedge Funds Are Piling Into

10. Brookfield Business Corporation (NYSE:BBUC)

Number of Hedge Fund Holders: 3

On March 15, Brookfield Business Partners L.P. announced a unit split which resulted in the creation of Brookfield Business Corporation (NYSE:BBUC), which focuses on healthcare, construction, and wastewater services in the United States, Europe, Australia, the United Kingdom, Canada, and Brazil. It operates through three segments – Business Services, Infrastructure Services, and Industrials. According to Insider Monkey’s Q3 2022 data, Brookfield Business Corporation (NYSE:BBUC) was part of 3 hedge fund portfolios, compared to 6 in the prior quarter. 

9. FTAI Infrastructure Inc. (NASDAQ:FIP)

Number of Hedge Fund Holders: 11

FTAI Infrastructure Inc. (NASDAQ:FIP) announced its successful spinoff from Fortress Transportation and Infrastructure Investors LLC on August 1, 2022. FTAI Infrastructure Inc. (NASDAQ:FIP) concentrates on acquiring, developing, and running infrastructure assets and businesses that serve transportation and energy sector clients. In the third quarter of 2022, the company posted a revenue of $78.56 million, up 113.6% year-over-year, beating estimates by $5.56 million.  FTAI Infrastructure Inc. (NASDAQ:FIP) also renewed an existing Exxon contract at Jefferson Terminal for the shipment of refined products to Mexico for a five-year term. Additionally, the company acquired 12,000 acres in West Virginia for further development of gas reserves for Long Ridge. 

On September 21, Compass Point analyst Giuliano Bologna maintained a Buy recommendation on FTAI Infrastructure Inc. (NASDAQ:FIP) but trimmed the price target from $39 to $31. The analyst updated his model and forecasts to reflect the spinoff of FTAI Infrastructure Inc. (NASDAQ:FIP), which resulted in a change in value, but still viewed Fortress Transportation’s shares as poised to perform well as the company raises usage, generates revenue from assets, and expands its aerospace services. 

According to Insider Monkey’s data, 11 hedge funds were long FTAI Infrastructure Inc. (NASDAQ:FIP) at the end of the third quarter of 2022, with combined stakes worth $32.3 million. 

In addition to General Electric Company (NYSE:GE), Johnson & Johnson (NYSE:JNJ), and 3M Company (NYSE:MMM), FTAI Infrastructure Inc. (NASDAQ:FIP) is one of the stocks popular among smart investors. 

8. Embecta Corp. (NASDAQ:EMBC)

Number of Hedge Fund Holders: 19

Embecta Corp. (NASDAQ:EMBC) is a New Jersey-based medical device provider specializing in offering various products to improve the health and well-being of individuals with diabetes. The offerings include pen needles, syringes, safety devices, and digital tools to help manage the disease. Becton, Dickinson and Company (NYSE:BDX), a top global medical technology company, announced on April 1 that it has concluded its spinoff of Embecta Corp. (NASDAQ:EMBC), which operates BD’s former Diabetes Care segment and is now one of the biggest pure-play diabetes management companies in the world. It is one of the best spin-off stocks to invest in. 

On January 6, Morgan Stanley analyst Cecilia Furlong downgraded Embecta Corp. (NASDAQ:EMBC) to Underweight from Equal Weight with a $28 price target. The analyst sees Embecta as a profitable global diabetes company with an established presence, but views it as a story of long-term execution. The T2D patch pump holds the most potential for growth in the business, but its impact is not expected until FY25, when the market is expected to be more competitive, according to the analyst.

According to Insider Monkey’s data, 19 hedge funds were long Embecta Corp. (NASDAQ:EMBC) at the end of September 2022, compared to 13 funds in the last quarter. John Petry’s Sessa Capital is the largest stakeholder of the company, with 2.5 million shares worth $73.8 million. 

Here is what Madison Funds specifically said about Embecta Corp. (NASDAQ:EMBC) in its Q2 2022 investor letter:

“During the quarter, we exited Embecta Corp. (NASDAQ:EMBC) and initiated a position in Nike. We received shares in Embecta as a result of Becton Dickinson spinning-off its Diabetes Care segment. In our assessment, Embecta was fairly valued, so we decided to exit the holding.”

7. ZimVie Inc. (NASDAQ:ZIMV)

Number of Hedge Fund Holders: 20

ZimVie Inc. (NASDAQ:ZIMV) is a Colorado-based medical technology company that develops, manufactures, and commercializes a portfolio of products and solutions to treat a range of spine pathologies, support dental tooth replacement, and restoration procedures worldwide. On March 1, Zimmer Biomet Holdings, Inc. (NYSE:ZBH), a leading global medical technology firm, completed the spinoff of ZimVie Inc. (NASDAQ:ZIMV), its former dental and spine division.

On December 21, Barclays analyst Matt Miksic started coverage of ZimVie Inc. (NASDAQ:ZIMV) with an Underweight rating and a $9 price target. The stability of the dental business contrasts with the difficulties faced by the spine division, which has suffered double-digit declines in a market growing at a low single digit or remaining flat, according to the analyst. He sees no improvement in the near future. Given the large amount of cash and working capital tied to the spine business, the analyst anticipates ZimVie Inc. (NASDAQ:ZIMV)’s spine losses to persistently weigh on the overall performance of the company.

According to Insider Monkey’s data, ZimVie Inc. (NASDAQ:ZIMV) was part of 20 hedge fund portfolios at the end of Q3 2022, compared to 16 in the last quarter. ZimVie Inc. (NASDAQ:ZIMV) is one of the best spin-off stocks that hedge funds are piling into. 

Ariel Investment made the following comment about ZimVie Inc. (NASDAQ:ZIMV) in its Q3 2022 investor letter:

“By comparison, shares of leading manufacturer and distributor of medical devices specializing in spine and dental products ZimVie Inc. (NASDAQ:ZIMV) sharply declined in the quarter, following a downward revision in full-year guidance. Over the long-term, we believe the foreign exchange headwinds the company is facing will soften and expect the management team to enhance its focus on research and development, as well as expand the product portfolio across its core value chain.”

6. Haleon plc (NYSE:HLN)

Number of Hedge Fund Holders: 21

Haleon plc (NYSE:HLN) provides therapeutic oral health, pain relief, respiratory health, digestive health, and other consumer health products, including vitamins, minerals, and supplements. On July 18, British pharmaceutical company GSK plc (NYSE:GSK) separated its consumer health division, Haleon plc (NYSE:HLN), in the largest European listing in over 10 years. Consequently, Haleon became the largest independent consumer health company globally, housing well-known brands such as Sensodyne toothpaste and Advil.

On January 6, Morgan Stanley analyst Rashad Kawan upgraded Haleon plc (NYSE:HLN) to Overweight from Equal Weight with a price target of 370 GBp, up from 295 GBp. The analyst thinks “reasonably-priced Staples stocks with a reliable growth proposition” should do well versus the market this year.

According to Insider Monkey’s third quarter database, 21 hedge funds were bullish on Haleon plc (NYSE:HLN), with collective stakes worth $305.3 million. 

Like General Electric Company (NYSE:GE), Johnson & Johnson (NYSE:JNJ), and 3M Company (NYSE:MMM), Haleon plc (NYSE:HLN) is on the radar of elite hedge funds.

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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Disclosure: None. 10 Recent Spin-off Companies That Hedge Funds Are Piling Into is originally published on Insider Monkey.