Luxury retailer Coach began business in 1941 in a Manhattan loft
with 6 skilled artisans crafting leather goods.
Hanes began making men's socks in 1901. It went on to make women's
socks and when nylon was invented in 1938, Hanes was among the
first to make pantyhose. It also branched out to make men's
What do these two companies have in common?
Hanes was bought by Sara Lee, best known for its baking business
which included bread and other baked goods as well as other food
and beverage brands such as Hillshire Farm, Jimmy Dean and
Ballpark, in 1979.
Coach was initially a family owned business but, strangely enough,
it was also bought by Sara Lee in 1985.
Sara Lee is now known as Hillshire Farm and focuses mostly on meat
Sara Lee ultimately decided to spin-off both Coach and Hanes into
their own separately traded companies so it could focus on its food
business. Coach went public in 2001 and Hanes in 2006.
Spin-offs Unlock Value
Over the last 100 years, large U.S. companies would often buy
secondary businesses either because it enhanced its current
business model or because it didn't know what else to do with its
In 1976, for instance, oil giant Mobil Oil bought department store
chain Montgomery Wards in one of the strangest marriages between
When business divisions are in totally separate industries, there
can be calls for a spin-off.
Shareholders and analysts argue that spin-offs of a division can
unlock "value" that Wall Street simply isn't recognizing in a
company when it is a part of a larger business.
Advantages of a Spin-off
Spin-offs are not the same as new companies going IPO, though they
sometimes get lumped into the same category.
Spin-offs usually have a much longer business history, such as
Coach's 59 years in business before its IPO, and that can translate
into an experienced management team.
Financial data can also be easier to come by because its sales and
earnings are usually reported as part of a larger conglomerate.
3 Superstar Stock Spin-Offs to Buy Now
Not all spin-offs move higher out of the gate but these three
spin-offs have seen their shares soar since their parent company
set them free.
They also have an attractive Zacks Rank and earnings growth.
2. Fortune Brands Home & Security
3. Fiesta Restaurant Group
1. Tripadvisor, Inc.
Surprised to see TripAdvisor on a list of spin-offs? It was
spun-off from Expedia in Dec 2011.
TripAdvisor is the largest travel web site in the world. It has 260
million unique monthly users.
Forward P/E = 59
2013 Expected Earnings Growth = 1.6%
2014 Expected Earnings Growth = 33%
Zacks Rank #3 (Hold)
TripAdvisor has a good earnings surprise track record since its
IPO. It has only missed once.
Shares are up 205% since the IPO.
2. Fortune Brands Home & Security, Inc.
Fortune Brands Home & Security displays its pedigree in its
name, as it was spun-off from Fortune Brands, Inc. in Sep 2011.
The company sells MasterBrand kitchen cabinets, Moen faucets and
Simonton windows as well as security products through the Master
Forward P/E = 27.5
2013 Expected Earnings Growth = 68%
2014 Expected Earnings Growth = 28%
Zacks Rank #2 (Buy)
Fortune Brands Home & Security also has a solid earnings track
record, with just one miss since its IPO.
As the real estate market has heated up, and consumers started
spending money remodeling their homes again, the company's earnings
and revenue has soared.
Shares are up 223% since the IPO.
3. Fiesta Restaurant Group, Inc.
Fiesta is the least known of these three companies. It was spun off
from Carrols Corporation, which operates 570 Burger King
restaurants in 13 states in the Northeast and Mid-Atlantic, in
It operates 310 quick-casual restaurant brands Pollo Tropical and
Taco Cabana. Pollo Tropical offers tropical and Caribbean inspired
food at 100 company owned and 38 franchised restaurants in the
U.S., Puerto Rico, the Bahamas, Costa Rica, Ecuador, Honduras,
India, Panama, Trinidad & Tobago, Venezuela and the Dominican
It has been aggressively expanding the Pollo Tropical chain
Fiesta also operates 164 company owned and 8 franchised Taco Cabana
restaurants in the U.S.
Forward P/E = 54.5
2013 Expected Earnings Growth = 29%
2014 Expected Earnings Growth = 26%
Zacks Rank #3 (Hold)
For 2014, it expects to open 20-22 Pollo Tropical and 2-4 Taco
Cabana restaurants. It also forecasts 2014 comparable restaurant
sales for Pollo Tropical of 3% to 5% and 1.5% to 3.5% at Taco
Fiesta also has a solid EPS track record. It has just 1 miss since
Shares are up 237% since the IPO.
Spin-offs As Hidden Gems
Spin-offs don't get nearly the love that start-up IPOs get. They
don't get their logo hung in a banner on the steps of the New York
But spin-offs usually have a longer business track record and, once
freed from operating within a larger company, they can finally
Don't neglect the spin-off when looking for that next hidden gem.
[In full disclosure, the author of this article owns shares of
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FORTUNE BRD H&S (FBHS): Free Stock Analysis
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