Spinoff Odds & Ends: All Horizon Kinetics – Firm Likes Conduent(CNDT), Howard Hughes(HHC) and More

Lets take a look at some recent spinoff news from the large asset manager:

1) Horizon Kinetics Likes Conduent (CNDT)

At the very end of 2016, Xerox (XRX) spun off its business process outsourcing unit Conduent. After an initial dip, shares have recovered, but overall, the stock has mostly been flat since the spinoff. That isn’t a terrible outcome considering the company has yet to have a single profitable quarter in its existence. Horizon Kinetics thinks there is upside in the name though because the market isn’t giving the company enough credit for its strong free cash flow generation and success in cutting costs. The company has reduced ‘its number of call centers and other real estate locations by nearly 20%’ and cut ‘headcount by more than 7%’. According to Horizon, these changes have made the operations more efficient.

So what does this mean for the stock? ‘Free cash flow is expected to be 20%-30% of adjusted EBITDA, giving Conduent ample cash to pay down its $1.8 billion of net debt, which we believe, alone, could increase the company’s share price by more than 50% over time.’ Not bad at all.

2) Horizon’s Q3 2017 Commentary Provides Updates on Howard Hughes (HHC) and AMC Networks (AMCX)

Horizon’s Murray Stahl always pens thought provoking pieces and I always enjoy reading his commentary on the markets. The main focus of this past quarter’s commentary is cryptocurrency and the firm takes a much more positive view on the asset class than say…Jamie Dimon. At the end of the piece, Mr. Stahl also provides another update on two of the firm’s current holdings, both of which happen to be spinoffs:

  • Howard Hughes Corporation – the firm has been a holder since the 2010 spinoff from General Growth Properties. GGP and HHC have been absolute home runs and one of Bill Ackman’s greatest hits. Horizon urges shareholders not to worry about the lack of conventional financial results and the firm also thinks the recent fears over the effects of Hurricane Harvey are overstated.
  • AMC Networks – the maker of hits such as ‘Breaking Bad’ and ‘Mad Men’ is also a 2011 spinoff from the Dolan-run Cablevision. Like many other media companies, AMC’s stock has been hit over ‘cord cutting’ fears. In short, Horizon thinks the company is in better position than its peers due to its strong content and smaller footprint. Additionally, the firm thinks the earnings drag from its new international division will go away in the future either due to success or to the company cutting bait.

Disclosure: Author holds no position in any stock mentioned.