“We can say without reservation that, in investing, spinoffs are the closest thing you can find to a sure thing. It all comes down to the incentives when companies spin off a subsidiary or division and hand out shares to their shareholders. Study after study has shown that after an initial adjustment period of a few months, spinoffs tend to outperform groups of comparable stocks for several years….” Pat McKeough shows how spinoffs and other “special situations” can create windfalls for informed investors.
Activist investor Elliott Management won a seat on the board of directors for Citrix Systems in 2015. It then pushed the company to unlock shareholder value. Thanks in part to that pressure, in early 2017, Citrix spun off its GoTo business through a tax-efficient merger with LogMeIn Inc.
CITRIX SYSTEMS $89(Nasdaq symbol CTXS; Manufacturing sector; Shares outstanding: 150.7 million; Market cap: $13.4 billion; Takeover Target Rating: Medium; No dividends; TSINetwork Rating: Extra Risk; www.citrix. com) develops and sells products and services to corporations that let their employees remotely and securely access all the software, apps and data they rely on to do their jobs.
Instead of installing individual pieces of software on their employees’ computers, corporate clients use Citrix’s remote servers to give their employees access to all the software and other applications they need. Employees can access that network of programs regardless of where they’re located.
In the quarter ended December 31, 2017, Citrix’s revenue rose 5.9%, to $777.9 million from $734.6 million a year earlier. Earnings per share rose 20.3%, to $1.66 from $1.38.
The company’s balance sheet is sound, with its long-term debt of $2.1 billion is just 16% of its market cap. In addition, Citrix holds cash and investments of $2.7 billion. It also continues to aggressively buy back shares, repurchasing $1.2 billion worth in 2017.
The company operates in a competitive market, but sales of its proven products and services should keep rising as clients look for ways to cut costs and increase security.
Citrix Systems is a spinoff buy.
LOGMEIN $130(Nasdaq symbol LOGM; Manufacturing sector; Shares outstanding: 52.7 million; Market cap: $6.9 billion; Takeover Target Rating: Medium; Dividend yield 0.9%; TSINetwork Rating: Extra Risk; www.logmein.com) provides cloud-based services for remote access, device management, data management, customer care, and collaboration.
The company’s best-known product is GoToMeeting. This lets users connect to business meetings from various devices, as well as serving other key functions. LogMeIn also offers a range of customer contact, help desk, live chat and other support software. In addition, users can access those services from an array of computer and mobile devices.
In the quarter ended September 30, 2017, Log- MeIn’s revenue rose sharply, to $269.3 million from $85.1 million a year earlier.
GoTo contributed most of that gain after its merger with LogMeIn.
Excluding onetime items, earnings in the latest quarter jumped to $62.1 million from $14.8 million. Earnings per share rose 107.1%, to $1.16 from $0.56, on more shares outstanding due to the merger. Log- MeIn holds cash of $276.0 million, or $5.24 a share, and has no debt.
Like Citrix, LogMeIn operates in a highly competitive and ever-changing market. However, its leading products also let clients cut costs and retain their customers. Those users increasingly want uncomplicated cloud-based remote support. That, for example, lets technicians quickly start up on-demand support sessions as well as access unattended systems for repairs or updates.
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