Colfax Corp. (CFX) is our latest spinoff idea, explains Jim Osman, editor of The Edge's speciality advisory service, Spinoff Report Lite.
Our data shows what may be the next step in the Rales brothers value creation process. The Rales brothers are the co-founders of Danaher (DHR) and are known for their hugely successful spinoff of Fortive (FTV) in 2016.
We believe the brothers will be using the same playbook to spin off Colfax's "FabTech" business (to be spun off as ESAB) from its "MedTech" business — the parent after the spin off, which is to be renamed Enovis — via a tax-free distribution.
A key insider is buying pre-spin off:
On Aug 4, 2021, co-founder and Chairman Mitch Rales bought 250,200 shares at a price of $46.19 a share, spending over $11.5 million. This is his eighth open market purchase over the last decade and this was his second largest purchase ever in CFX, increasing his stake ahead of the break-up;
An activist study also points to upside potential:
We have seen the entry by activist firm Starboard Value into the stock in October 2021 post the spinoff announcement. What could this mean for CFX? Our recent analysis showed that the Industrials sector (CFX's FabTech division) represents the firm’s second-best performing sector. Likewise, the Health Care sector (CFX's MedTech division) came in fourth.
Based on the Rales brothers’ track records, key insider buying ahead of the spin, and the value unlocking opportunity for both Enovis and ESAB, we recommend entering CFX (the parent pre-spin) at current levels. Earnings are expected on February 22, 2022. The upside potential pre-spin off is 23%, with bullish upside potential of 41%.
