$GSK LEAPs look interesting.
GSK has low vol so options are cheap if you think the stock has upside (which I do)....
Just confirmed consumer spin-off will take place by mid-2022.....
Jefferies thinks the consumer business is worth 46BN GBP.
That implies a 22x multiple on 2020 EBIT of 2.1BN. Seems reasonable as P&G trades at 23x EBIT.
GSK owns 68% of the consumer business (PFE owns 32%)
If you assume RemainCo (pharma and vaccines) deserves to trade at 12x EBIT ('20 EBIT of 6.9BN), it is worth 82.8BN.
MRK, PFE, AZN, trade at 23x, 23x, and 18x.
Add it all up and subtract net debt, and it looks like there is ~32% upside.
32% upside is usually not enough to get me too excited, but the interesting thing here is that you can buy long dated options (LEAPs) for GSK.
That looks way more compelling (higher risk too!).
According to Schwab, GSK calls at a 35 strike expiring in Jan '23 last traded for $5.80.
If I'm right and GSK is worth $52.22, I see ~200% upside in this contract.
See math below.
Want more special situation / spin-off ideas?
Follow me here:
twitter.com/stockspinoffss
Disclosure: I'm long GSK LEAPs.
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