As Peter Lynch mentions in his book One Up on Wall Street, spinoff’s can be a great investment for several reasons.
Often the spin-off is well capitalized by its parent company and has a strong balance sheet.
It’s value isn’t being recognized under the parent company. The parent spins it off so it can grow unencumbered.
The spin-off flies “under the radar” of Wall Street and doesn’t attract a lot of attention allowing investors to buy a good company at a discount.
As of January 2017, Conduent operates in the “business processing outsourcing” industry. That’s business jargon for handling things like payments for government organizations. In places like New York, New Jersey, Georgia and California, it handles ETC (Electronic Toll Collection) on state highways.
Business processing qualifies as boring. Another checkmark on Peter Lynch’s investment criteria.
Despite being in a boring space, Conduent makes the most of new technology. You can see how they have improved highway traffic by allowing single-person drivers to use multi-person carpool lanes at a premium.
I’ve come to this company because I have been doing work for one of Conduent’s competitors. I’m using my amateur’s edge. I have first-hand knowledge and can see the profits that are being made.
New technology and data analytics is changing the industry. Augmenting existing infrastructure to improve efficiencies in business processing will drive demand for Conduent’s services.
I wouldn’t classify Conduent as a fast-grower considering the business processing industry is growing at 5%/year. However, if it continues to leverage technology, earnings could outperform that benchmark.