Companies spin off business units in a bid to boost margins and increase shareholder value, and investors should take advantage of the those that have been spun out — as they typically beat the market in the long run, according to Morgan Stanley. “Spin-offs present investors with a unique opportunity to capitalize on unlocked and potentially underappreciated value,” Morgan Stanley strategists said in a note. The Wall Street firm analyzed more than 400 spin-off transactions over the past 20 years. It found that spinoffs outperformed the market by 10% two years after deal completion, while parent companies underperformed by 8%. The S & P U.S. Spin-Off Index, which consists of companies with market caps above $1 billion market cap spun off from a parent company in the last four years, has handily outperformed the S & P 500 since its creation in 2006. The spinoff index posted a 9.1% total return, compared to the S & P 500’s 6.7 return during the same period. Parent companies tend to get a boost leading up to a spinoff announcement as investors speculate on the move, but the pop usually fades post-announcement, Morgan Stanley said. Among different sectors, the biggest outperformance is seen in spinoffs in consumer staples and materials sectors, while companies in consumer discretionary, energy and financials tend to underperform, the Wall Street firm said. Morgan Stanley highlighted a slew of companies that have recently announced a spinoff plan, including Fidelity National Information , BorgWarner , Liberty Media and Danaher. — CNBC’s Michael Bloom contributed reporting.
