Post-Deal Performance
In the weeks since Axiall’s creation, the stock has performed well in relation to its peers and former parent. It has also outperformed the broader market by a substantial margin. On Jan. 29, Axiall’s shares began trading at around $54 per share. Since then, they have moved on a steady upward trajectory and touched a post-deal closing high of $60.08 on Feb. 14. As of late February, they have notched consistent closes above $59 per share and produced a return of about 11 percent.
This compares to an anemic S&P 500 return of about 1.5 percent during the same period. PPG has also demonstrated mediocre performance, sliding from a closing price near $141 per share on Jan. 29 to around $138 per share by February 15. This represents a decline of about 2 percent. As such, Axiall can be said to have outperformed the broader market by almost 10 percent. Meanwhile, it has outperformed PPG by about 13 percent.
Long-Term Prospects and Outlook
Based on Axiall’s positive performance during a mediocre stretch for the broader market, the company appears poised to enjoy further short-term gains. As a new company, it lacks accurate performance indicators like earnings per share, P/E ratios and beta readings. However, it seems logical that its performance will mirror that of its two major components. Since both were widely regarded as healthy companies before the spin-off and merger, it follows that Axiall represents a long-term value.
In addition, odd-lot investors technically received their Axiall shares at a discount. Although the deal provided an immediate arbitrage opportunity for sharp-eyed PPG Industries, Inc. (NYSE:PPG) investors, Axiall remains undervalued by several percentage points. This fact alone suggests that the company’s stock price will correct towards its “appropriate” valuation near $65 per share during the coming weeks.
In sum, Axiall Corp (NYSE:AXLL) may not provide aggressive traders with an opportunity for outsize short-term gains. However, it seems likely that the company will continue to meet or exceed earnings and revenue expectations. A period of secular economic growth may further brighten the company’s medium-term prospects. Barring an unexpected earnings miss or breaking-news development, Axiall Corp (NYSE:AXLL) is on the watchlist among other special situations at ArbIdeas.com and deserves a spot on every medium-term investor’s watch-list.
The article This Company Deserves a Spot on Your Watchlist originally appeared on Fool.com and is written by Mike Thiessen
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