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The Weekly Wrap-Up – March 14, 2025

The Weekly Wrap-Up provides a list of upcoming spin-offs and summaries of recent publications.  If you haven’t engaged with the research over the past seven days, the Weekly Wrap-Up will quickly update you on our newest and highest conviction ideas.


UPCOMING SPIN-OFFS AND EXPECTED COMPLETION DATES:


RECENT PUBLICATIONS:

CONTINENTAL AG (CON GR) – UPDATE – March 10, 2025

Continental AG To Spin-Off its Automotive Division by the End of 2025

On December 18, 2024, the Executive Board of Continental AG (CON GR) informed the Supervisory Board of its decision to proceed with the spin-off of 100% of CON’s Automotive Group. The transaction is expected to be completed by the end of 2025 and additional financial details, including short- and medium-term targets for the standalone Automotive Group, which is expected to be listed on the Frankfurt stock exchange, will be provided at a Capital Markets Day in the “summer of 2025”.

Continental is the world’s third-largest automotive supplier. It operates across four segments: 1) Automotive; 2) Contract Manufacturing; 3) Tires; and 4) ContiTech (i.e., non-tire rubber and industrial plastics). Following the spin-off, Continental will have two fully independent, publicly traded entities: 1) Automotive Group (or SpinCo); and 2) New Continental (or RemainCo).

SpinCo will be a pure-play automotive technology & contract manufacturing company. In 2024, the assets proposed to be separated generated sales of €19.7 billion (~49% of Continental AG’s total sales). Per management, SpinCo is expected to achieve sales of €22-€24 billion in the short term and €26-€29 billion over the medium term, with EBIT margins improving from 2% in 2024 to >6% in the short term and 6% to 8% in the medium term. However, in 2025, management’s guidance is for Automotive segment sales to remain under pressure, with a projected revenue base of €18-€20 billion and an adjusted EBIT margin of 2.5%-4.0%.

RemainCo will consist of the Tires and ContiTech businesses, which together recorded €20.0 billion of sales in 2024 (or ~51% of total Continental AG sales). Post spin, RemainCo is expected to benefit from higher margins, improved cash generation, and higher return on capital employed, strengthening Continental’s financial position and supporting long-term growth plans. RemainCo is expected to grow its revenue to €22-€24 billion and €25-€27 billion in the short and medium term, respectively, based on the guidance provided by management. The parent company currently holds an investment-grade credit rating, which we expect RemainCo will maintain, given its strong margin profile, higher replacement demand and relatively stable outlook. At least initially, we expect SpinCo’s capital structure should remain broadly aligned with the requirements for an investment-grade rating.

SpinCo could be compared with Aptiv (NYSE: APTV), Autoliv (NYSE: ALV), Faurecia (EPA: FRVIA), Gestamp (BME: GEST), OPMobility (EPA: OPM), Schaeffler (ETR: SHA), and Valeo (EPA: FR), which, on average, trade at ~7.1x 2025E EV/EBIT (in a range of 6.7-9.5x). RemainCo could be compared with other pure-play tire concerns, such as Michelin (ENXTPA: ML), Pirelli & C. S.p.A. (BIT: PIRC), and Bridgestone Corporation (TSE: 5108) which trade at ~8.5x median 2025E EV/EBIT (in a range of 7.0-8.8x).

Applying a 7.1x multiple to the mid-point of SpinCo’s 2025E EBIT guidance of €617.5 million implies a segment value of ~€4.4 billion, while applying an 8.5x multiple to RemainCo’s 2025E EBIT of ~€2.4 billion implies a segment value of ~€20.0 billion. Accounting for the net debt of ~€5.6 billion and pension liabilities of ~€2.8 billion, yields a preliminary pre-spin valuation of ~€15.6 billion or ~€78 per share, 13% above the current share price.

 

Middleby Corporation (MIDD) – ALERT – March 6, 2025

Middleby (NASDAQ: MIDD), a global foodservice provider of cooking equipment, industrial processing equipment, and residential appliances, intends to pursue the separation of its Food Processing business into a new, independent, publicly traded company via a tax-free spin-off that is expected to be completed in “early-2026”. Concurrent with the announcement, MIDD also added activist investor, Ed Garden (formerly of Trian and a ~1.4% holder) as well as Julie Bowerman (the chief marketing officer at J&J spin-off Kenvue) to its Board (while announcing the retirement of long-time director, John Miller, at the 2025 Annual Meeting).

RemainCo (the Commercial & Residential businesses) competes with a range of companies, including Electrolux AB (ELUXB SS), Haier Smart Home (600690 CH), Hoshizaki Corp. (6465 JT), Illinois Tool Works Inc. (NYSE: ITW), which owns Hobart & Vulcan-Hart, Midea Group Co. (000333 CH), Panasonic Holdings Corp. (6752 JT), and Rational AG (RAA GY) as well as, more so on the residential front, LG Electronics Inc. (066570 KS), Samsung Electronics Co. (005930 KS), Whirlpool Corp. (NYSE: WHR), Bosch Ltd. (BOS IN), and Thermador Group (THEP FP).  The Food Service business, at least in the public markets, could be compared with JBT Marel Corp. (NYSE: JBTM) and GEA Group AG (G1A GY), which trade at ~10.5x.

Applying a blended multiple of ~12.0x EV/EBITDA to 2026E EBITDA for RemainCo and a ~10.5x multiple at SpinCo implies values of ~$9.55 billion and nearly $2.1 billion, respectively. Accounting for corporate costs, capitalized at the blended corporate average, as well as projected net debt yields a preliminary, base case, sum-of-the-parts valuation of ~$9.25 billion or ~$170.50 per share (based on a diluted share count of ~54.2 million).

 


Radar Screen – March 2025

Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event

Companies discussed this month:  Albany International (AIN), Alphabet Inc. (GOOG), APi Group (APG), California Resources Corp. (CRC), Crown Castle Inc. (CCI), Goodyear Tire & Rubber, Inc. (GT), Intel Corporation (INTC), Luxfer Holdings (LXFR), Masimo Corp. (MASI), Matthews International Corp. (MATW), Netgear Inc. (NTGR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), TriMas Corporation (TRS), Walgreens Boots Alliance, Inc., (WBA), XPO Inc. (XPO)

*added this month


Spin-Off Report Calendar – March 2025

Published monthly, The Spin-Off Calendar provides one-page summaries of every spin-off under coverage from the announcement date, followed by the filing of the Form 10 and continuing 60 days post completion.


Spin-Off Report Compendium – February 2025

Murray Stahl’s commentary on various investing themes and single stock recommendations.


European Spin-Off Compendium – February 2025

Murray Stahl’s commentary on various investing themes and single stock recommendations in Europe. 


Bits & Pieces – February 2025

Covers mispriced stub securities, tracking stocks and other arbitrage opportunities.


Product Specialist

Rich Albanese
ralbanese@pcsresearchgroup.com
+1 646-839-5566

The Weekly Wrap-Up – March 7, 2025

The Weekly Wrap-Up provides summaries of recent publications from Hidden Opportunities including links to the full-length research reports.  If you haven’t engaged with the research over the past seven days, the Weekly Wrap-Up will quickly update you on our newest and highest conviction ideas. 


HIGH-CONVICTION RECOMMENDATIONS (LONG):


RECENT INITIATIONS:


LATEST PUBLICATIONS & UPDATES:

Update: NPK International (NPKI) February 28, 2025

NPKI (formerly NR) reports full-year 2024 results; provides initial standalone 2025 guidance and expects its re-branding efforts post the Fluid Systems sale to be completed by the end of 1Q 2025

NPK International (new ticker NPKI), which changed its name from Newpark Resources (old ticker NR) in December 2024 following the sale of its oil field services business, reported full-year 2024 sales from continuing operations up ~5% to $217.5 million with operating income and adj. EBITDA up ~41% and 12%, respectively, to $32.4 million and $54.9 million.

NPKI, besides having already changed its corporate moniker & ticker, expects its “industry re-classification” (e.g., CUSIP) efforts to be complete by the end of 1Q 2025.

We think investors can still look forward to a potential re-rating of NPKI’s stock toward a valuation more in-line with specialty rental & services peers as opposed to a legacy oilfield services provider which has perplexingly not yet gained traction within the investment community despite the company’s current position as a pure-play provider of work access solutions focused on the global critical infrastructure complex, including the utility & energy transmission markets.  

Our base case fair value for NPKI (formerly NR) remains ~$9.50 per share based on a 10.5x multiple on 2026E adjusted EBITDA of ~$73 million, while accounting for corporate costs and projected net debt/cash.

 

Update: Luxfer (LXFR) February 26, 2025

LXFR reports full-year 2024 results modestly ahead of expectations, in part due to some demand “pull-forwards” in its Defense markets; issues initial 2025E guidance; still sees the sale of Graphics Arts sale closing in 1H 2025 as “exclusive” talks with a new buyer

LXFR reported 3Q 2024 consolidated sales up 2.1% to $99.4 million with adj. EBITDA and EPS of $15.4 million and $0.32, respectively. 

Management indicated the timing for the closing of the sale of its Graphic Arts is now expected to be in 1H 2025 (versus previous commentary suggesting 2H 2024).  When pressed on its confidence in the new timing for a transaction management responded that given the level of interest it thought 1H 2025 was a “reasonable” expectation.

The company also reiterated its cognizance that the Gas Cylinders and Elektron businesses have “no material synergies” and that it is committed to continuously evaluating market conditions for opportunities to unlock value (that said, the divestment of the Graphic Arts business is seemingly its top current priority).

Our base case fair value estimate for LXFR remains $16.50 per share, reflecting values of ~$8 per share, ~$10 per share, and ~$0.50 per share for the Gas Cylinders, Elektron and Graphic Arts businesses, respectively. Accounting for projected net debt of ~$2 per share yields a base case sum-of-the-parts fair value of ~$16.50 per share (with bull and bear cases of ~$19 per share and ~$14 per share, respectively; see Exhibit #2 on page 2).

 

Update: Topgolf Callaway Brands (MODG) February 25, 2025

MODG reports full-year 2024 results and provides initial 2025E guidance incorporating myriad headwinds, particularly FX, in a “reset” year as management continue to work toward the spin/sale of Topgolf

MODG reported full-year 2024 results with consolidated sales down ~1% to $4.39 billion (versus consensus of $4.198 billion and guidance of $4.20-$4.26 billion) with adjusted EBITDA down a similar amount to $587.7 million (compared with consensus of $561.4 million and guidance of $560-$570 million).  Adjusted EPS was $0.23 (compared with consensus of $0.14, guidance of $0.08-$0.13) with adj. free cash flow of ~$203 million (versus consensus of $66 million and guidance of $115 million;)

Management provided an initial full-year 2025 outlook calling for consolidated sales of $4.0-$4.18 billion (compared with consensus of $4.3 billion) and adjusted EBITDA of $415-$505 million (compared with our initial forecast of ~$530 million and consensus of ~$560 million).

Without providing specific guidance management anecdotally indicated the expectation MODG would be free cash flow positive in 2025 (based on a capital spending budget of $150-$160 million, of which ~$90-$100 million will be directed toward Topgolf) as it was in 2024 and 2023.

Our base case fair value estimate for MODG is revised to $11.00 per share (from $11.50 per share), reflecting a blended multiple of ~8.5x multiple on our 2026E adjusted EBITDA of ~$523.5 million (previously $548.5 million) and net debt of ~$2.2 billion.

 


Radar Screen – March 2025

Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event

Companies discussed this month:  Albany International (AIN), Alphabet Inc. (GOOG), APi Group (APG), California Resources Corp. (CRC), Crown Castle Inc. (CCI), Goodyear Tire & Rubber, Inc. (GT), Intel Corporation (INTC), Luxfer Holdings (LXFR), Masimo Corp. (MASI), Matthews International Corp. (MATW), Netgear Inc. (NTGR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), TriMas Corporation (TRS), Walgreens Boots Alliance, Inc. (WBA)*, XPO Inc. (XPO)

*New this month


Product Specialist

Rich Albanese
ralbanese@pcsresearchgroup.com
+1 646-839-5566

The Weekly Wrap-Up – March 7, 2025

The Weekly Wrap-Up provides a list of upcoming spin-offs and summaries of recent publications.  If you haven’t engaged with the research over the past seven days, the Weekly Wrap-Up will quickly update you on our newest and highest conviction ideas.


UPCOMING SPIN-OFFS AND EXPECTED COMPLETION DATES:


RECENT PUBLICATIONS:

Middleby Corporation (MIDD) – ALERT – March 6, 2025

Middleby (NASDAQ: MIDD), a global foodservice provider of cooking equipment, industrial processing equipment, and residential appliances, intends to pursue the separation of its Food Processing business into a new, independent, publicly traded company via a tax-free spin-off that is expected to be completed in “early-2026”. Concurrent with the announcement, MIDD also added activist investor, Ed Garden (formerly of Trian and a ~1.4% holder) as well as Julie Bowerman (the chief marketing officer at J&J spin-off Kenvue) to its Board (while announcing the retirement of long-time director, John Miller, at the 2025 Annual Meeting).

RemainCo (the Commercial & Residential businesses) competes with a range of companies, including Electrolux AB (ELUXB SS), Haier Smart Home (600690 CH), Hoshizaki Corp. (6465 JT), Illinois Tool Works Inc. (NYSE: ITW), which owns Hobart & Vulcan-Hart, Midea Group Co. (000333 CH), Panasonic Holdings Corp. (6752 JT), and Rational AG (RAA GY) as well as, more so on the residential front, LG Electronics Inc. (066570 KS), Samsung Electronics Co. (005930 KS), Whirlpool Corp. (NYSE: WHR), Bosch Ltd. (BOS IN), and Thermador Group (THEP FP).  The Food Service business, at least in the public markets, could be compared with JBT Marel Corp. (NYSE: JBTM) and GEA Group AG (G1A GY), which trade at ~10.5x.

Applying a blended multiple of ~12.0x EV/EBITDA to 2026E EBITDA for RemainCo and a ~10.5x multiple at SpinCo implies values of ~$9.55 billion and nearly $2.1 billion, respectively. Accounting for corporate costs, capitalized at the blended corporate average, as well as projected net debt yields a preliminary, base case, sum-of-the-parts valuation of ~$9.25 billion or ~$170.50 per share (based on a diluted share count of ~54.2 million).

 

Teleflex Inc. (TFX) – ALERT – February 28, 2025

Teleflex Incorporated (NYSE: TFX), a global medical technology/device company, announced the separation of its Urology, Acute Care and OEM businesses into a new, independent, publicly traded company via a tax-free spin-off that is expected to be completed in “mid-2026”.

In terms of valuation, Teleflex could be compared with a wide range of medical device/technology companies, including Align Technology (NASDAQ: ALGN), The Cooper Companies (NASDAQ: COO), Edward Lifesciences (NYSE: EW), Globus Medical (NYSE: GMED), Hologic Inc. (NASDAQ: HOLX), ICU Medical (NASDAQ: ICUI), Integra LifeSciences (NASDAQ: IART), Intuitive Surgical (NASDAQ: ISRG), LivaNova (NASDAQ: LIVN), ResMed Inc. (NYSE: RMD) and Steris Plc (NYSE: STE), which trade at ~17x 2026E EPS (albeit in a range of ~8.0x-22.0x). Applying 12.5x and 8x multiples to the estimated pro-rata share of forecasted 2026E earnings for RemainCo and SpinCo implies segment values of $128 and ~$29 per share, respectively, or an initial pre-spin sum-of-the-parts valuation of ~$157 per share (based on a diluted share count of 45.5 million), 19% above the current share price.

 


Radar Screen – March 2025

Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event

Companies discussed this month:  Albany International (AIN), Alphabet Inc. (GOOG), APi Group (APG), California Resources Corp. (CRC), Crown Castle Inc. (CCI), Goodyear Tire & Rubber, Inc. (GT), Intel Corporation (INTC), Luxfer Holdings (LXFR), Masimo Corp. (MASI), Matthews International Corp. (MATW), Netgear Inc. (NTGR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), TriMas Corporation (TRS), Walgreens Boots Alliance, Inc., (WBA), XPO Inc. (XPO)

*added this month


Spin-Off Report Calendar – March 2025

Published monthly, The Spin-Off Calendar provides one-page summaries of every spin-off under coverage from the announcement date, followed by the filing of the Form 10 and continuing 60 days post completion.


Spin-Off Report Compendium – February 2025

Murray Stahl’s commentary on various investing themes and single stock recommendations.


European Spin-Off Compendium – February 2025

Murray Stahl’s commentary on various investing themes and single stock recommendations in Europe. 


Bits & Pieces – February 2025

Covers mispriced stub securities, tracking stocks and other arbitrage opportunities.


Product Specialist

Rich Albanese
ralbanese@pcsresearchgroup.com
+1 646-839-5566

The Weekly Wrap-Up – February 28, 2025

The Weekly Wrap-Up provides a list of upcoming spin-offs and summaries of recent publications.  If you haven’t engaged with the research over the past seven days, the Weekly Wrap-Up will quickly update you on our newest and highest conviction ideas.


UPCOMING SPIN-OFFS AND EXPECTED COMPLETION DATES:


RECENT PUBLICATIONS:

Teleflex Inc. (TFX) – ALERT – February 28, 2025

Teleflex Incorporated (NYSE: TFX), a global medical technology/device company, announced the separation of its Urology, Acute Care and OEM businesses into a new, independent, publicly traded company via a tax-free spin-off that is expected to be completed in “mid-2026”.

In terms of valuation, Teleflex could be compared with a wide range of medical device/technology companies, including Align Technology (NASDAQ: ALGN), The Cooper Companies (NASDAQ: COO), Edward Lifesciences (NYSE: EW), Globus Medical (NYSE: GMED), Hologic Inc. (NASDAQ: HOLX), ICU Medical (NASDAQ: ICUI), Integra LifeSciences (NASDAQ: IART), Intuitive Surgical (NASDAQ: ISRG), LivaNova (NASDAQ: LIVN), ResMed Inc. (NYSE: RMD) and Steris Plc (NYSE: STE), which trade at ~17x 2026E EPS (albeit in a range of ~8.0x-22.0x). Applying 12.5x and 8x multiples to the estimated pro-rata share of forecasted 2026E earnings for RemainCo and SpinCo implies segment values of $128 and ~$29 per share, respectively, or an initial pre-spin sum-of-the-parts valuation of ~$157 per share (based on a diluted share count of 45.5 million), 19% above the current share price.

 

Western Digital Corp. (WDC) / Sandisk Corp. (SNDK) – UPDATE – February 24, 2025

WDC Completes the Spin-Off of SNDK; Initiate Post-Spin WDC at BUY & SNDK at NEUTRAL

Distribution: On February 21, 2025, at 11:59 p.m. (ET), WDC completed the tax-free spin-off of Sandisk Corporation (SNDK). Shareholders of record received one-third of one share of SNDK for every WDC share owned with WDC (the post-spin parent) retaining a 19.9% stake in SpinCo (with definitive plans for its disposal over the subsequent twelve months following completion).

Regular-way Trading & Indexation: Shares commence so-called “regular way” trading on February 24 with SNDK set to replace Leslie’s Inc. (LESL) in the S&P Small Cap 600 Index as of the open on February 25th while post-spin WDC will remain in the S&P 500 Index.

Pre-spin Recommendation: Following our initial pre-spin BUY recommendation earlier this month, shares of consolidated/pre-spin WDC appreciated ~8%, outperforming the S&P 500 and Russell 200 by ~8% and ~11%, respectively.

We assign initial ratings of BUY for post-spin WDC with a fair value of $61.50 and NEUTRAL for post-spin SNDK with a fair value of $50.37.

We see heightened risk for potential trading volatility at post-spin SanDisk (SNDK) due to the dour near-term investor sentiment on the Flash space, which could be modestly exacerbated by any index-related shareholder rotation (i.e., the S&P 500 for WDC versus the Small Cap 600 for SNDK). This dynamic could ultimately present a more compelling entry point for long-term investors (particularly in front of the potential for a re-rating ahead of a cyclical recovery in 2H 2025, a more disciplined pricing environment and a seemingly solid longer-term secular demand backdrop, particularly in enterprise SSD). We would highlight that there is a significant amount of leverage, in terms of post-spin SNDK’s share price performance, based on the broad range of potential profitability outcomes implied by management’s ~20% adjusted operating margin target (as well as its top-line goal of ~$10 billion), which, we note, could, all else being equal, a fair value estimate up to ~$59.50 per share (and ~$79 per share at the aspirational revenue target).


Radar Screen – February 2025

Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event

Companies discussed this month:  Albany International (AIN), Alphabet Inc. (GOOG), APi Group (APG), California Resources Corp. (CRC), Crown Castle Inc. (CCI), Goodyear Tire & Rubber, Inc. (GT), IAC Inc. (IAC), Intel Corporation (INTC), Luxfer Holdings (LXFR), Masimo Corp. (MASI), Matthews International Corp. (MATW), Netgear Inc. (NTGR)*, RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), TFI International Inc. (TFII), TriMas Corporation (TRS), XPO Inc. (XPO)

*added this month


Spin-Off Report Calendar – February 2025

Published monthly, The Spin-Off Calendar provides one-page summaries of every spin-off under coverage from the announcement date, followed by the filing of the Form 10 and continuing 60 days post completion.


Spin-Off Report Compendium – February 2025

Murray Stahl’s commentary on various investing themes and single stock recommendations.


European Spin-Off Compendium – February 2025

Murray Stahl’s commentary on various investing themes and single stock recommendations in Europe. 


Bits & Pieces – February 2025

Covers mispriced stub securities, tracking stocks and other arbitrage opportunities.


Product Specialist

Rich Albanese
ralbanese@pcsresearchgroup.com
+1 646-839-5566

The Weekly Wrap-Up – February 28, 2025

The Weekly Wrap-Up provides summaries of recent publications from Hidden Opportunities including links to the full-length research reports.  If you haven’t engaged with the research over the past seven days, the Weekly Wrap-Up will quickly update you on our newest and highest conviction ideas. 


HIGH-CONVICTION RECOMMENDATIONS (LONG):


RECENT INITIATIONS:


LATEST PUBLICATIONS & UPDATES:

Update: NPK International (NPKI) February 28, 2025

NPKI (formerly NR) reports full-year 2024 results; provides initial standalone 2025 guidance and expects its re-branding efforts post the Fluid Systems sale to be completed by the end of 1Q 2025

NPK International (new ticker NPKI), which changed its name from Newpark Resources (old ticker NR) in December 2024 following the sale of its oil field services business, reported full-year 2024 sales from continuing operations up ~5% to $217.5 million with operating income and adj. EBITDA up ~41% and 12%, respectively, to $32.4 million and $54.9 million.

NPKI, besides having already changed its corporate moniker & ticker, expects its “industry re-classification” (e.g., CUSIP) efforts to be complete by the end of 1Q 2025.

We think investors can still look forward to a potential re-rating of NPKI’s stock toward a valuation more in-line with specialty rental & services peers as opposed to a legacy oilfield services provider which has perplexingly not yet gained traction within the investment community despite the company’s current position as a pure-play provider of work access solutions focused on the global critical infrastructure complex, including the utility & energy transmission markets.  

Our base case fair value for NPKI (formerly NR) remains ~$9.50 per share based on a 10.5x multiple on 2026E adjusted EBITDA of ~$73 million, while accounting for corporate costs and projected net debt/cash.

 

Update: Luxfer (LXFR) February 26, 2025

LXFR reports full-year 2024 results modestly ahead of expectations, in part due to some demand “pull-forwards” in its Defense markets; issues initial 2025E guidance; still sees the sale of Graphics Arts sale closing in 1H 2025 as “exclusive” talks with a new buyer

LXFR reported 3Q 2024 consolidated sales up 2.1% to $99.4 million with adj. EBITDA and EPS of $15.4 million and $0.32, respectively. 

Management indicated the timing for the closing of the sale of its Graphic Arts is now expected to be in 1H 2025 (versus previous commentary suggesting 2H 2024).  When pressed on its confidence in the new timing for a transaction management responded that given the level of interest it thought 1H 2025 was a “reasonable” expectation.

The company also reiterated its cognizance that the Gas Cylinders and Elektron businesses have “no material synergies” and that it is committed to continuously evaluating market conditions for opportunities to unlock value (that said, the divestment of the Graphic Arts business is seemingly its top current priority).

Our base case fair value estimate for LXFR remains $16.50 per share, reflecting values of ~$8 per share, ~$10 per share, and ~$0.50 per share for the Gas Cylinders, Elektron and Graphic Arts businesses, respectively. Accounting for projected net debt of ~$2 per share yields a base case sum-of-the-parts fair value of ~$16.50 per share (with bull and bear cases of ~$19 per share and ~$14 per share, respectively; see Exhibit #2 on page 2).

 

Update: Topgolf Callaway Brands (MODG) February 25, 2025

MODG reports full-year 2024 results and provides initial 2025E guidance incorporating myriad headwinds, particularly FX, in a “reset” year as management continue to work toward the spin/sale of Topgolf

MODG reported full-year 2024 results with consolidated sales down ~1% to $4.39 billion (versus consensus of $4.198 billion and guidance of $4.20-$4.26 billion) with adjusted EBITDA down a similar amount to $587.7 million (compared with consensus of $561.4 million and guidance of $560-$570 million).  Adjusted EPS was $0.23 (compared with consensus of $0.14, guidance of $0.08-$0.13) with adj. free cash flow of ~$203 million (versus consensus of $66 million and guidance of $115 million;)

Management provided an initial full-year 2025 outlook calling for consolidated sales of $4.0-$4.18 billion (compared with consensus of $4.3 billion) and adjusted EBITDA of $415-$505 million (compared with our initial forecast of ~$530 million and consensus of ~$560 million).

Without providing specific guidance management anecdotally indicated the expectation MODG would be free cash flow positive in 2025 (based on a capital spending budget of $150-$160 million, of which ~$90-$100 million will be directed toward Topgolf) as it was in 2024 and 2023.

Our base case fair value estimate for MODG is revised to $11.00 per share (from $11.50 per share), reflecting a blended multiple of ~8.5x multiple on our 2026E adjusted EBITDA of ~$523.5 million (previously $548.5 million) and net debt of ~$2.2 billion.

 


Radar Screen – February 2025

Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event

Companies discussed this month:  Albany International (AIN), Alphabet Inc. (GOOG), APi Group (APG), California Resources Corp. (CRC), Crown Castle Inc. (CCI), Goodyear Tire & Rubber, Inc. (GT), IAC Inc. (IAC), Intel Corporation (INTC), Luxfer Holdings (LXFR), Masimo Corp. (MASI), Matthews International Corp. (MATW), Netgear Inc. (NTGR)*, RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), TFI International Inc. (TFII), TriMas Corporation (TRS), XPO Inc. (XPO)

*New this month


Product Specialist

Rich Albanese
ralbanese@pcsresearchgroup.com
+1 646-839-5566

The Weekly Wrap-Up – February 21, 2025

The Weekly Wrap-Up provides summaries of recent publications from Hidden Opportunities including links to the full-length research reports.  If you haven’t engaged with the research over the past seven days, the Weekly Wrap-Up will quickly update you on our newest and highest conviction ideas. 


HIGH-CONVICTION RECOMMENDATIONS (LONG):


RECENT INITIATIONS:


LATEST PUBLICATIONS & UPDATES:

Update: APi Group Corporation (APG) February 20, 2025

In conjunction with the favorable repricing of its 2029 Term Loan, APG broadly affirmed 2024E guidance and sets initial 2025E benchmarks; management foreshadows the establishment of “meaningfully” higher long-term targets at its Investor Day set for May 2025; fair value increased to $44 per share (from $42 per share)

In conjunction with the “successful” repricing of its 2029 Term Loan, which reduced the applicable margin by 25 basis points and implies ~$5 million of incremental annual cash interest savings, APG broadly re-affirmed its 2024E financial guidance as well as provided an initial outlook for 2025E.  Actual results for 4Q and full-year 2024 are expected to be discussed on an earnings call scheduled for February 26, 2025.

Our base case fair value estimate for Api Group (APG) is revised to $44 per share (from ~$42 per share), reflecting a blended multiple of ~13.5x on F2025E adjusted EBITDA of ~$985 billion (previously $975 million) along with projected net debt of ~$1.12 billion and a diluted share count of ~283.5 million.

 

Update: Garrett Motion Inc. (GTX) February 20, 2025

GTX posts in-line full-year 2024 results and issues initial 2025 guidance, which, at the mid-point, implies an ~17.5% FCF yield; in our estimation, robust capital returns to shareholders will persist over the long-term despite fluctuating underlying market conditions; base case fair value remains ~$12 per share

GTX reported full-year 2024 sales down 11% (or 10% on a constant currency basis) to $3.475 billion amid soft light vehicle production (particularly in Europe & China), competitive pressures on OEM’s globally as well as headwinds from commodity deflation & currency fluctuations. Adj. EBITDA fell ~5.8% to $598 million while adj. free cash flow (FCF) was $358 million (versus $422 million in 2023). GAAP net income improved 8% to $282 million (on 140 bps of margin improvement to 8.1%).

On the dividend front, the company announced a $0.06 per share quarterly dividend (or ~$50 million annually), of which the first was paid on January 31, 2025. On the share repurchase front, GTX’s Board authorized a new $250 million share repurchase program for 2025, which if fully exhausted would further reduce the outstanding share count by an additional ~12.5%, by our calculation.

Management has solid visibility (with ~80% of sales over next 5-years having already been awarded by its OEM customers and a historical win rate on new business of greater than 50%) and we broadly concur with management’s contention that the core turbocharger business is likely to be larger in 2030 than it is today. GTX could generate free cash approximating the company’s current market capitalization over the next five years.

Our base case fair value estimate for GTX remains ~$12 per share, reflecting an 8.5x multiple on our 2026E adjusted net income forecast of $257.5 million and a fully diluted share count of ~186 million.

 

Update: Matthews International (MATW) February 20, 2025

MATW confirms early reports that it has “narrowly” defeated Barington’s three Board nominees following some last-minute corporate governance concessions; that said, we note the activist’s campaign yielded tangible changes/benefits for shareholders (and a strategic review remains on-going)

It seems the result may ultimately been swayed by the corporate governance concessions recently offered by management, including the commitment to appoint a new independent board chair by next year’s annual meeting, add a new independent director with experience in battery & EV technology solutions and propose a de-classification of the Board (with all directors expected to stand for election on an annual basis).

While this is a disappointing outcome for Barington, in our view, it is hard to view the activist’s campaign as a failure from a wider shareholder perspective considering the tangible changes/benefits achieved over the last 6-months, including the monetization of the SGK Brand Solutions business for ~$400 million in cash (and other considerations), from which the proceeds could, by our calculation, reduce MATW’s leverage ratio to ~2.6x (from ~3.9x at the end of 1Q F2025), as well as the enactment of an on-going strategic review aimed at evaluating all options to unlock value for shareholders.

Our base case fair value estimate for MATW is revised to $40 per share, reflecting a blended multiple of ~9.5x multiple on our F2026E adjusted EBITDA of $~$167.5 million and net debt of ~$319.5 million.

 


Radar Screen – February 2025

Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event

Companies discussed this month:  Albany International (AIN), Alphabet Inc. (GOOG), APi Group (APG), California Resources Corp. (CRC), Crown Castle Inc. (CCI), Goodyear Tire & Rubber, Inc. (GT), IAC Inc. (IAC), Intel Corporation (INTC), Luxfer Holdings (LXFR), Masimo Corp. (MASI), Matthews International Corp. (MATW), Netgear Inc. (NTGR)*, RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), TFI International Inc. (TFII), TriMas Corporation (TRS), XPO Inc. (XPO)

*New this month


Product Specialist

Rich Albanese
ralbanese@pcsresearchgroup.com
+1 646-839-5566

The Weekly Wrap-Up – February 21, 2025

The Weekly Wrap-Up provides summaries of recent publications from the Spin-Off Report including links to the full-length research reports.  If you haven’t engaged with the research over the past seven days, the Weekly Wrap-Up will quickly update you on our newest and highest conviction ideas.


UPCOMING SPIN-OFFS AND EXPECTED COMPLETION DATES:

  • Western Digital (WDC) / HDD Business – February 21st (regular way trading begins 2/24)
  • Spectrum Brands (SPB) / Home & Personal Care Business – 1H 2025 (sale more likely than spin-off)
  • Holcim Ltd. (HOLN SW) / North American Business – May/June 2025
  • DuPont Inc. (DD) / Electronics Business – 4Q 2025
  • Topgolf Callaway Brands Corp. (MODG) / Topgolf – 2H 2025
  • Unilever PLC (UL) / Ice Cream Business – Mid 2025
  • Fortive Corp. (FTV) / Precision Technologies Business – 4Q 2025
  • Comcast Corp. (CMCSA) / Cable Television Networks – 4Q 2025
  • SKF AB (SKFB SS) / Automotive Business – 1H 2026
  • FedEx (FDX) / FedEx Freight – 1H 2026
  • Aptiv PLC (APTV) / Electrical Distribution Systems – 1Q 2026
  • Becton, Dickinson (BDX) / Biosciences & Diagnostics Solutions – 2026
  • Honeywell International (HON) / Advanced Materials / Automation and Aerospace- 2H 2026

RECENT PUBLICATIONS:

Western Digital Corporation (WDC) – UPDATE

The tax-free distribution, which is expected to occur at 11:59 p.m. on Friday, February 21st, will result in two post-spin entities trading under the tickers NASDAQ: SNDK and NASDAQ: WDC with “regular way” trading expected to commence Monday, February 24th. Shareholders of record will receive one-third of one share of SNDK for every WDC share owned and WDC will retain a 19.9% stake in SNDK (with definitive plans for disposal over the subsequent twelve-months following completion).

Our pre-spin fair value estimate is $76 per share (from $75 per share), 12% upside from the current share price.  Post-spin, shares of SanDisk are valued at $41.50/share (accounting for the one-for-three share distribution ratio and the 19.9% stake retained by WDC), and post-spin WDC at $62/share (including the estimated value of its retained ownership of SNDK).

 


Radar Screen – February 2025

Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event

Companies discussed this month:  Albany International (AIN), Alphabet Inc. (GOOG), APi Group (APG), California Resources Corp. (CRC), Crown Castle Inc. (CCI), Goodyear Tire & Rubber, Inc. (GT), IAC Inc. (IAC), Intel Corporation (INTC), Luxfer Holdings (LXFR), Masimo Corp. (MASI), Matthews International Corp. (MATW), Netgear Inc. (NTGR)*, RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), TFI International Inc. (TFII), TriMas Corporation (TRS), XPO Inc. (XPO)

*added this month


Spin-Off Report Calendar – February 2025

Published monthly, The Spin-Off Calendar provides one-page summaries of every spin-off under coverage from the announcement date, followed by the filing of the Form 10 and continuing 60 days post completion.


Spin-Off Report Compendium – February 2025

Murray Stahl’s commentary on various investing themes and single stock recommendations.


European Spin-Off Compendium – November 2024

Murray Stahl’s commentary on various investing themes and single stock recommendations in Europe. 


Bits & Pieces – February 2025

Covers mispriced stub securities, tracking stocks and other arbitrage opportunities.


Product Specialist

Rich Albanese
ralbanese@pcsresearchgroup.com
+1 646-839-5566

The Weekly Wrap-Up – February 14, 2025

The Weekly Wrap-Up provides summaries of recent publications from the Spin-Off Report including links to the full-length research reports.  If you haven’t engaged with the research over the past seven days, the Weekly Wrap-Up will quickly update you on our newest and highest conviction ideas.


UPCOMING SPIN-OFFS AND EXPECTED COMPLETION DATES:

  • Western Digital (WDC) / HDD Business – February 21st (regular way trading begins 2/24)
  • Spectrum Brands (SPB) / Home & Personal Care Business – 1H 2025 (sale more likely than spin-off)
  • Holcim Ltd. (HOLN SW) / North American Business – May/June 2025
  • DuPont Inc. (DD) / Electronics Business – 4Q 2025
  • Topgolf Callaway Brands Corp. (MODG) / Topgolf – 2H 2025
  • Unilever PLC (UL) / Ice Cream Business – Mid 2025
  • Fortive Corp. (FTV) / Precision Technologies Business – 4Q 2025
  • Comcast Corp. (CMCSA) / Cable Television Networks – 4Q 2025
  • SKF AB (SKFB SS) / Automotive Business – 1H 2026
  • FedEx (FDX) / FedEx Freight – 1H 2026
  • Aptiv PLC (APTV) / Electrical Distribution Systems – 1Q 2026
  • Becton, Dickinson (BDX) / Biosciences & Diagnostics Solutions – 2026
  • Honeywell International (HON) / Advanced Materials / Automation and Aerospace- 2H 2026

RECENT PUBLICATIONS:

Western Digital Corporation (WDC) – UPDATE – February 13, 2025

This week, Western Digital Corp. (NASDAQ: WDC) held back-to-back investor days ahead of the impending separation of its Flash & HDD businesses into two standalone companies, Sandisk Corp. and Western Digital Corporation. Upon completion of the tax-free distribution, which is expected to occur at 11:59 p.m. on Friday, February 21st, the two post-spin entities will begin trading under the tickers NASDAQ: SNDK and NASDAQ: WDC, respectively with “regular way” trading expected to commence Monday, February 24th. Shareholders of record will receive one-third of one share of SNDK for every WDC share owned and WDC will retain a 19.9% stake in SpinCo (with definitive plans for disposal over the subsequent twelve-months following completion).

Day 1 focused on Sandisk, where the company indicated 3Q F2025 will remain a “tough…transition” period, forecasting standalone 3Q F2025 SNDK sales of $1.55-$1.65 billion with adj. gross margin of 21.5%-23.0%, operating expenses of ~$395-$405 million, interest & other expense of ~$25-$30 million, a non-GAAP tax rate of 21%-23% and adj. EPS of $(0.30)-$(0.45). The company re-iterated confidence that the current industry-wide supply/demand imbalance would reverse in the 2H 2025 as excess industry inventory is depleted and a potential refresh cycle is driven by the roll-out of Windows 11 and AI enabled devices.

Day 2 focused on post-spin Western Digital.  The company discussed the attractive secular backdrop for HDD demand, driven by the growing storage needs of the cloud and AI, along with the predictability and scalability of its operations, in terms of earnings and cash flows.  To that end, the company projected that the total addressable market of its nearline HDD market, which is ~80% levered to the cloud, will grow from ~$13 billion in 2024 to more than $22.5 billion in 2028.  Within that underlying demand backdrop (as well as the oligopolistic nature of the HDD space), the company expects to post top-line growth at least in-line with the industry, which is conservatively projected to grow in the mid-to-high single digits, with adj. gross and operating margins that are equal to or greater than ~38% and ~24%, respectively.

All told, our initial investment thesis remains substantively intact with our pre-spin fair value estimate moving to $76 per share (from $75 per share), 12% upside from the current share price.

 


Radar Screen – February 2025

Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event

Companies discussed this month:  Albany International (AIN), Alphabet Inc. (GOOG), APi Group (APG), California Resources Corp. (CRC), Crown Castle Inc. (CCI), Goodyear Tire & Rubber, Inc. (GT), IAC Inc. (IAC), Intel Corporation (INTC), Luxfer Holdings (LXFR), Masimo Corp. (MASI), Matthews International Corp. (MATW), Netgear Inc. (NTGR)*, RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), TFI International Inc. (TFII), TriMas Corporation (TRS), XPO Inc. (XPO)

*added this month


Spin-Off Report Calendar – February 2025

Published monthly, The Spin-Off Calendar provides one-page summaries of every spin-off under coverage from the announcement date, followed by the filing of the Form 10 and continuing 60 days post completion.


Spin-Off Report Compendium – February 2025

Murray Stahl’s commentary on various investing themes and single stock recommendations.


European Spin-Off Compendium – November 2024

Murray Stahl’s commentary on various investing themes and single stock recommendations in Europe. 


Bits & Pieces – February 2025

Covers mispriced stub securities, tracking stocks and other arbitrage opportunities.


Product Specialist

Rich Albanese
ralbanese@pcsresearchgroup.com
+1 646-839-5566

The Weekly Wrap-Up – February 14, 2025

The Weekly Wrap-Up provides summaries of recent publications from Hidden Opportunities including links to the full-length research reports.  If you haven’t engaged with the research over the past seven days, the Weekly Wrap-Up will quickly update you on our newest and highest conviction ideas. 


HIGH-CONVICTION RECOMMENDATIONS (LONG):


RECENT INITIATIONS:


LATEST PUBLICATIONS & UPDATES:

Update: Matthews International (MATW) February 14, 2025

MATW to sell the remainder of its SGK Brand Solutions segment for an additional $50 million, which will be earmarked for further debt reduction  

MATW announced that it had entered into a letter of intent (LOI) for the disposal of the remaining assets within its SGK Brand Solutions, namely the European roto-gravure packaging & surfaces businesses, for consideration of ~$50 million, which will be predominantly paid in cash that will be directly to debt reduction.

Recall, in January 2025, MATW announced a definitive agreement to sell its stake in SGK Brand Solutions to SGS & Co., a privately held global brand agency.  Per the agreement, which is expected to close in mid-2025, MATW will receive $350 million of upfront consideration, comprised of $250 million in cash, the retention of ~$50 million in securitized trade receivables and $50 million of preferred equity in the new entity.

By our calculation, assuming $250-$300 million of incremental debt reduction MATW’s leverage ratio would, all else being equal, improve to 2.5x-2.6x (as compared with 3.9x at the end of 1Q F2025).

Despite these recent actions, the company’s wider strategic review remains on-going as does the proxy contest currently being waged by ~2% owner Barington Capital, which has nominated three independent directors for election at the 2025 Annual Meeting (scheduled for February 20th).

In terms of the ultimate outcome of the shareholder vote, we would simply note that on one hand Barington’s nominees have been recommended by the proxy advisory firms Glass Lewis, ISS and Egan Jones while on the other long-time shareholder GAMCO, a ~4.5% holder, has publicly signaled its intent to support MATW’s current slate of directors (albeit with a keen eye on further corporate governance improvements).

In terms of guidance, on the 1Q F2025 earnings call, management re-iterated its initial full-year F2025 adjusted EBITDA guidance, which still includes SGK and takes a “cautious” stance, of $205-$215 million.  Broadly, this outlook anecdotally reflects the expectation for continued stability at Memorialization, growth at SGK and on-going uncertainty within the Industrial Technologies segment (which could be alleviated by the recent arbitration ruling solidifying the company’s right to universally commercialize its Dry Battery Electrode battery technology).  

Our base case fair value estimate for MATW is revised to $40 per share, reflecting a blended multiple of ~9.5x multiple on our F2026E adjusted EBITDA of $~$167.5 million and net debt of ~$319.5 million.

Update: TriMas Corporation  February 10, 2025

TRS retains advisors to conduct a wider review of its portfolio amid the on-going leadership transition; fair value remains $32 per share   

TRS announced it had retained PJT Partners (NYSE: PJT) and Bank of America (NYSE: BAC) as financial advisors to explore a range of potential options for its remaining businesses (following the completed sale of its Arrow Engine division as well as the decision of long-time CEO, Mr. Thomas Amato, to step aside in early-January 2025.) 

For context, TRS has faced criticism from shareholders, including 1.5% holder Barington Capital (as well as, to a lesser degree, ~10.3% holder Trend International) who has called for both a leadership transition as well as the monetization of individual assets or the entire firm. 

To that end, in the wake of Mr. Amato’s decision to step down from both his management and Board positions Barington renewed its campaign to unlock value by publicly contending that in lieu of conducting a comprehensive search for a new leader the Board should take the opportunity to retain bankers and purse strategic alternatives (again, to evaluate the sale of business units or the company en masse). 

The company expects to report 4Q 2024 results before the market open on February 22nd with a conference call later that morning at 10 a.m. (ET); call-in at (877) 407-0890.

In terms of guidance, on the 3Q 2024 conference call TRS reiterated its most recent full-year 2024 guidance calling for consolidated adj. EPS of $1.70-$1.90 on consolidated sales growth of ~4%-6% (see Exhibit 1 on page 2).

By segment, management forecasts top-line growth of 9%-10% and 18%-22% at Packaging & Aerospace, respectively, with adj. EBITDA margins of 21%-23% and 18%-19%.  Specialty Product segment sales are expected to be down 25%-30% with a segment adj. EBITDA margin profile of 10%-14% (see Exhibit 2 on page 2). 

Our base case fair value estimate for TRS remains $32 per share, reflecting a blended multiple of ~9.0x on 2025E adj. EBITDA of ~$173 million, projected net debt of ~$319 million and a fully diluted share count of ~40.1 million (see Exhibit #3 on page 3).

 


Radar Screen – February 2025

Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event

Companies discussed this month:  Albany International (AIN), Alphabet Inc. (GOOG), APi Group (APG), California Resources Corp. (CRC), Crown Castle Inc. (CCI), Goodyear Tire & Rubber, Inc. (GT), IAC Inc. (IAC), Intel Corporation (INTC), Luxfer Holdings (LXFR), Masimo Corp. (MASI), Matthews International Corp. (MATW), Netgear Inc. (NTGR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), TFI International Inc. (TFII), TriMas Corporation (TRS), XPO Inc. (XPO)


Product Specialist

Rich Albanese
ralbanese@pcsresearchgroup.com
+1 646-839-5566

The Weekly Wrap-Up – February 7, 2025

The Weekly Wrap-Up provides summaries of recent publications from the Spin-Off Report including links to the full-length research reports.  If you haven’t engaged with the research over the past seven days, the Weekly Wrap-Up will quickly update you on our newest and highest conviction ideas.


UPCOMING SPIN-OFFS AND EXPECTED COMPLETION DATES:

  • Western Digital (WDC) / HDD Business – Late February 2025
  • Spectrum Brands (SPB) / Home & Personal Care Business – 1H 2025 (sale more likely than spin-off)
  • Holcim Ltd. (HOLN SW) / North American Business – May/June 2025
  • DuPont Inc. (DD) / Electronics Business – 4Q 2025
  • Topgolf Callaway Brands Corp. (MODG) / Topgolf – 2H 2025
  • Unilever PLC (UL) / Ice Cream Business – Mid 2025
  • Fortive Corp. (FTV) / Precision Technologies Business – 4Q 2025
  • Comcast Corp. (CMCSA) / Cable Television Networks – 4Q 2025
  • SKF AB (SKFB SS) / Automotive Business – 1H 2026
  • FedEx (FDX) / FedEx Freight – 1H 2026
  • Aptiv PLC (APTV) / Electrical Distribution Systems – 1Q 2026
  • Becton, Dickinson (BDX) / Biosciences & Diagnostics Solutions – 2026
  • Honeywell International (HON) / Advanced Materials / Automation and Aerospace- 2H 2026

RECENT PUBLICATIONS:

Western Digital Corporation (WDC) – COMPREHENSIVE REPORT – February 7, 2025

On October 30, 2023, Western Digital Corp. (NASDAQ: WDC) announced a plan to separate its HDD (Hard Disk Drive) and Flash (NAND) businesses into two independent, standalone, publicly traded companies via a tax-free spin-off to shareholders. Initially, the goal was to complete the transaction in the second half of 2024, but the most recent commentary suggests a completion date in late-February 2025.

The company completed a “soft-spin” or internal separation of the two businesses last July and publicly filed its most recent Form 10 in January. Additionally, the company intends to hold a capital markets event for SpinCo, which will re-assume its original corporate moniker of SanDisk Corp. and ultimately trade under the NASDAQ ticker SNDK, on February 11, 2025.

The post-spin HDD business, which will retain the Western Digital corporate identity and continue to trade under WDC on NASDAQ, will conduct a similar investor event the following day on February 12, 2025. Shareholders will receive one-third of one share of SNDK for every WDC share owned as of the record date and WDC will retain a 19.9% stake in SpinCo (with definitive plans for disposal over the subsequent twelve-months following completion).

Management indicated that the separation would “better position each business to execute innovative technology and product development, capitalize on unique growth opportunities, extend respective leadership positions and operate more efficiently with distinct capital structures.” While both companies are broadly in the data storage industry, they operate in differing businesses, both in terms of end-markets, each having their own size, cyclicality and growth prospects/cadences (enterprise cloud vs. consumer-oriented PC, mobile and gaming), as well as capital intensity.

On a pre-spin basis, investors should consider the mixed/disparate near-term outlook for the HDD and Flash businesses (as well as recent management changes) against the backdrop of solid longer-term demand trends. The need for data storage capacity continues to accelerate, in part driven by the needs of hyperscalers and artificial intelligence (AI) computing models, along with what appears to be an un-demanding valuation that suggests the impending transaction is poised to unlock value.

As a standalone, WDC’s hard disk drive (HDD) business is the more stable of the two, in terms of near-term revenue, margins and cash flow trends. It also has a robust outlook, driven by increased data-center and cloud storage demand. Additionally, there is the relatively oligopolistic nature of the underlying competitive market, where WDC and Seagate Technology (NASDAQ: STX) essentially control ~80% of the share, while the Flash (or NAND, as it is commonly referred) business is grappling with pricing pressure driven by excess inventory and “choppy” demand (or what management terms as a “mid-cycle pause”) within its core personal computer (PC) and smartphone end-markets, as well as increased foreign competition (e.g., China-based Yangtze Memory Technologies).

The demand outlook driven by the ever increasing/secular need for storage capacity along with the sheer sizes of the total addressable markets support an attractive underlying industry backdrop for both businesses. In fact, despite the current weakness in the broader industry, the enterprise Flash market is perhaps better positioned than HDD looking into the next decade.

Shares currently trade at a valuation, which, at least to some degree, reflects the near-term uncertainty at Flash and suggests the impending transaction could unlock value, warranting a BUY recommendation. On a pre-spin basis, we fairly value shares of WDC at ~$75 per share, consisting of $16 per share for SanDisk and $59 for the remaining HDD business. On a post-spin basis, shares of SanDisk are valued at ~$37.50 per share (accounting for the one-for-three share distribution ratio and the 19.9% stake retained by its former parent), and post-spin WDC at $62 per share (including the estimated value of its retained ownership in SNDK).

Upon distribution, we see heightened potential risk for initial volatility at post-spin SanDisk. This is due to the seemingly dour near-term investor sentiment, which could be exacerbated by the uncertainty regarding index inclusion, as the parent is a member of the S&P 500 Index. That said, this dynamic could ultimately present a compelling entry point for long-term investors (particularly in front of the potential for a re-rating ahead of a cyclical recovery in 2H 2025, a more disciplined pricing environment and a seemingly solid longer-term secular demand backdrop, particularly in enterprise SSD).

 

Magnera Corporation (MAGN) – UPDATE  – February 6, 2025

On February 6, Magnera Corp. (MAGN) reported 1Q F2025 results, it’s first as a standalone company after completing its spin-off from BERY and concurrent RMT merger with GLT in early-November 2024, with net sales up ~2% to $702 million, driven largely by price as volumes were flat (and unfavorable currency changes were a ~$14 million headwind) with adjusted EBITDA growth of ~8% to $84 million and a net loss of $22 million. (Per management, assuming the merger with GLT occurred at the beginning of the quarter adj. EBITDA would have been ~$92 million.)

The company ended 1Q F2025 with a leverage ratio of 4.0x, reflecting net debt of $1.78 billion comprised of $215 million in cash (with total liquidity of ~$500 million) and $1.996 billion of debt. The company still targets a leverage goal of 3.0x (although not likely achievable in F2025).

We still look forward to MAGN laying out a formal long-term financial framework and management did provide full-year F2025 guidance, calling for adj. EBITDA of $385-$405 million with adjusted free cash flow (FCF) of $75-$95 million, based on a capital spending budget of ~$85 million (including $10 million of IT-related conversion costs). Interest expense is projected to be ~$130 million while taxes and other one-time integration costs are expected to total ~$60 million.

Despite a modestly positive reaction for the stock, MAGN’s initial F2025 guide clearly underwhelmed as compared with our initial adj. EBITDA forecast of $490 million.

To that end, based on the current outlook our fair value estimate for MAGN is revised to $33 per share, 65% above the current price.

 

Honeywell International Inc. (HON) – UPDATE – February 6, 2025

On February 6 before the market open, Honeywell International Inc. (HON) announced plans for the tax-free separation of its Automation and Aerospace businesses, which comes in addition to the previously announced plan to spin-off its Advanced Materials business. In terms of timing, management targets a 2H 2026 completion for the transaction, subject to customary conditions, including the filing and effectiveness of a Form 10 registration, the receipt of various regulatory approvals and final consent of HON’s Board of Directors.

Currently, HON manages its business in four primary operating segments: 1) Aerospace; 2) Building Technologies; 3) Performance Materials & Technologies; and 4) Safety & Productivity Solutions. The Advanced Materials (AM) business, which presently resides as a unit within the Performance Materials & Technologies segment provides sustainability-focused specialty chemicals & materials under such brands as Solstice, Spectra, Hydranal and Aclar, is expected to generate sales of $3.7-$3.9 billion with an EBITDA margin profile greater than 25% in F2024. As a standalone, management envisions the Advanced Materials company, which has a large-scale domestic manufacturing base, will benefit from more flexible/optimized capital allocation and allow investors to focus their capital more acutely. Honeywell Automation, which will focus on powering the industrial digital transformation, generated ~$18 billion of sales in 2024 with a segment margin of ~23% while Honeywell Aerospace, which is generally viewed as the company’s “crown jewel”, will be one of the largest pure play aerospace suppliers at ~$15 billion in sales (and a segment margin of ~26%).

Within the context of HON’s corporate strategy of focusing on what management views as three “compelling megatrends” – automation, aviation and the global energy transition. That said, in late-2024, the company also came under pressure from activist-investor Elliott Investment Management who issued a public letter to HON’s Board indicating it had made “a more than $5 billion” investment in the company. Elliott asserted that the current conglomerate operating structure has led to “uneven execution”, “inconsistent financial results” and share price underperformance over the last 5-years. As a prescription to these perceived ills, Elliott called on HON to separate its Aerospace and Automation businesses into two separate, standalone companies (which is a move that it estimates could unlock 50%-75% of share price appreciation over the next two years).

As previously indicated management thinks that given the businesses’ outsized margin profile relative to peers, the standalone Advanced Materials (AM) business should trade at a premium to competitors, such as Chemours (NYSE: CC) and Arkema (AKE FP), which trade at ~6.5x 2025E EBITDA, while a wider group, including ABB Ltd. (ABB SS), Emerson Electric (NYSE: EMR), Rockwell Automation (NYSE: ROK) and Schneider Electric (SU FP), bring the overall group average up to ~13.5x 2025E EBITDA. Applying a 13x multiple to estimated Performance Materials & Technologies segment 2025E EBITDA implies value of ~$37.5 billion.

The Aerospace segment could be compared with peers, such as Garmin Ltd. (NYSE: GRMN), L3Harris Technologies (NYSE: LHX), Northrop Grumman (NYSE: NOC), RTX Corp. (NYSE: RTX), Safran SA (SAF FP), and Thales SA (HO FP), which trade at ~15.5x while a broader range of industry comparables (as espoused by Elliott) including GE Aerospace (NYSE: GE), HEICO (NYSE: HEI), Howmet Aerospace (NYSE: HMT), Rolls Royce (RR/LN), RTX Corp. (NYSE: RTX), Safran (SAF FP) and TransDigm (NYSE: TDG) trade at ~21.5x 2025E EV/EBITDA. Applying a blended 19.0x multiple to estimated 2025E Aerospace segment EBITDA implies a segment value of $101 billion.

Next, the Buildings Technologies segment could be compared with Carrier Global (NYSE: CARR), Johnson Controls (NYSE: JCI), Schneider Electric (SU FP) and Siemens AG (SIE GY), which trade at ~15.5x 2025E EV/EBITDA. Applying the peer multiple to estimated 2025 segment EBITDA implies a value of ~$27 billion.

Lastly, applying a 13x peer multiple, in-line with peers, such as 3M (NYSE: MMM), Kion Group (KGX GR), MSA Safety (NYSE: MSA), TE Connectivity (NYSE: TEL), Carrier Global (NYSE: CARR) and Zebra Technologies (NASDAQ: ZBRA), to estimated 2025E segment EBITDA at Safety & Productivity Solutions, implies a segment value of ~$13.5 billion. Accounting for corporate costs as well as projected net debt yields an initial sum-of-the-parts fair value estimate of ~$158 billion or ~$241 per share, 17% above the current price.

 

Becton, Dickinson & Co. (BDX) – ALERT – February 6, 2025

On February 5, Becton, Dickinson and Company (NYSE: BDX), a global medical technology company, announced the separation of its Biosciences & Diagnostic Solutions (B&DS) business via, among other options, a spin-off, sale or Reverse Morris Trust (RMT) transaction. The company expects to provide more specificity by the end of F2025 (September-ending) and aims to ultimately complete any transaction in F2026.

As a standalone, SpinCo (i.e., B&DS) will be a pure-play life science tools and diagnostics player operating within an addressable market of ~$22 billion that is growing at “mid-to-high single-digit” rate. Specifically, the B&DS business generated ~$3.4 billion in sales during 2024, of which ~80% were recurring, and adjusted EBITDA margins ~30%. RemainCo (or New BD) will have an increased focus on its core healthcare provider & patient (i.e., MedTech) end markets and was indicated to have generated 2024 sales of ~$17.8 billion, of which over 90% were recurring, amid an ~$70 billion addressable market that is estimated to be growing at ~5%. Post-separation, New BD will operate four business units: 1) Medical Essentials (~$6.2 billion in 2024 sales); 2) Connected Care ($4.3 billion); 3) BioPharma Systems (~$2.3 billion); and 4) Interventional (~$5 billion in 2024 sales).

It was reported earlier this month in the financial press that activist-investor Starboard Value had established a stake in BDX, which completed the spin-off of diabetes device maker Embecta Corp. (NASDAQ: EMBC) in April 2022, and was privately urging a sale of the company’s life sciences business (at a reportedly ~$30 billion valuation). Management believes a transaction will “optimize the market valuation” of each of the standalone/pure-play MedTech and Life Science Tools businesses.

In terms of valuation, SpinCo could be compared with Life Sciences & Diagnostics peers, such as Agilent Technologies (NYSE: A), Avantor Inc. (NYSE: AVTR), Bruker Corp. (NASDAQ: BRKR), Illumina Inc. (NASDAQ: ILMN), Metter-Toledo International (NYSE: MTD), Revvity Inc. (NYSE: RVTY), Qiagen (NYSE: QGEN), Thermo-Fischer Scientific (NYSE: TMO) and Waters Corp. (NYSE: WAT), which, on average, trade at ~18x 2026E EV/EBITDA (in a range of 11.5x-22x) while RemainCo (New BD) could be compared with a broad range of medical device/equipment concerns, such as Abbott Laboratories (NYSE: ABT), Styker Corp. (NYSE: SYK), Edward Lifesciences Corp. (NYSE: EW), which sold its critical care business to BDX in September 2024 for around 14x forward, Medtronic (NYSE: MDT), Steris (NYSE: STE) and Enovis (NYSE: ENOV), which trade, on average, at ~13x 2026E EV/EBITDA (in a range of 11.5x-22x). Applying an 18x multiple to estimated 2026E EBITDA at SpinCo implies segment value of ~$20.5 billion while applying a 14x multiple to 2026E EBITDA at RemainCo implies segment value of ~$72 billion. Accounting for net debt of ~$18.0 billion yields a preliminary pre-spin valuation of ~$74.5 billion or ~$256.50 per share (based on a diluted share count of ~290.4 million).


Radar Screen – February 2025

Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event

Companies discussed this month:  Albany International (AIN), Alphabet Inc. (GOOG), APi Group (APG), California Resources Corp. (CRC), Crown Castle Inc. (CCI), Goodyear Tire & Rubber, Inc. (GT), IAC Inc. (IAC), Intel Corporation (INTC), Luxfer Holdings (LXFR), Masimo Corp. (MASI), Matthews International Corp. (MATW), Netgear Inc. (NTGR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), TFI International Inc. (TFII), TriMas Corporation (TRS), XPO Inc. (XPO)

 


Spin-Off Report Calendar – February 2025

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European Spin-Off Compendium – November 2024

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Bits & Pieces – January 2025

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