Come Monday, the Standard & Poor's Index will increase its number by 1 — Solventum, which trade under the ticker SOLV.
On Tuesday, it will add another stock, this time GE Vernova GEV.
And on Wednesday two current members of the index, VF Corp. (VFC) and Dentsply Sirona (XRAY) , will move to other S&P indexes.
In the process, one of the legendary names in American business, General Electric Co. (GE) , will have become something smaller and, after 132 years, GE will no longer be just GE.
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These aren't the only moves S&P Dow Jones will make. And they're happening because two very large companies — GE and 3M (MMM) — have concluded they can operate more efficiently and offer shareholders the potential for larger returns by spinning off some of their businesses.
The spinoffs will affect three more companies: Fox Factory Holding (FOXF) , ModivCare (MODV) and E.W. Scripps (SSP) .
How the indexes get shuffled
The order of events is this:
Monday: Solventum, which is the guts of 3M's health-care business, joins the S&P 500 with its spinoff from 3M. Solventum's $8.2 billion of 2023 sales represents about a quarter of 3M's 2023 sales. 3M remains in the S&P 500 and the S&P 100 indexes.
Tuesday: GE Vernova joins the index. It represents General Electric's portfolio of energy companies: renewable energy, power, and digital. In November 2021, GE said it would split into three companies. One already has been spun off into GE HealthCare GEHC. What remains of GE will simply be GE Aerospace, but it will keep its GE ticker. It also remains in the S&P 500 and S&P 100 indexes.
Wednesday Part 1: VF Corp. and Dentsply Sirona will be removed from the S&P 500. VF Corp will become a component of the S&P Smallcap 600 Index. VF markets outdoor and casual wear. Brands include North Face, Timberline and Jansport. Dentsply Sirona will join the S&P Midcap 400 Index. The company is a maker of dental equipment and dental-health products.
Wednesday Part 2: Fox Factory Holding, maker of products for the auto, off-road vehicle and motorcycle markets, will join VF in moving to the S&P 600. Fox Factory is now in the S&P 400.
Wednesday Part 3: S&P 600 components ModivCare and EW Scripps will be deleted from the index entirely. ModivCare started as Provident Services Corp. and offers social services and depends on government reimbursements. E.W. Scripps owns television stations and programming and the National Spelling Bee competition. It once was one of the nation's biggest newspaper owners and a major radio-station operator.
S&P Dow Jones, which runs the various S&P and Dow Jones indexes, is making moves, all related to size rules for the indexes, which were modified in January.
V.F. and Dentsply Sirona no longer have market caps big enough for inclusion in the S&P 500. The current minimum is $15.8 billion.
To be in the S&P 400 requires a market cap of $5.8 billion to $15.8 billion. For inclusion in the S&P 600, the range is $900 million to $5.8 billion.
The two spinoffs going into the S&P 500 were trading very differently even before the spinoffs were final
3M's big health-care business
3M is spinning off Solventum because the parent is so big, and it seemed putting the health-care business into a new venture would be good for everyone. 3M has struggled with growth issues and staggering costs for environmental remediation.
The health business includes tapes and dressings, electronic monitoring devices, orthodontia products and surgical supplies.
Solventum started to trade on a when-issued basis on March 26 at $91.05 after opening at $80. It finished Friday at $69.55, down 13.1% from Wednesday's close.
Based on the company's projected of earnings of $6.10 to $6.40, that would produce a forward price-to-earnings multiple of around 11.
3M will retain a 19.9% interest in Solventum. It is down 3% on the year but shot up 15.1% in March.
3M has a huge product mix encompassing more than 60,000 products. It makes everything from cellophane tape and Post-It Notes to Scotchgard, the water-repellent material applied to fabrics.
GE Vernova boosts its parent
GE Vernova also was trading on a when-issued basis starting on March 27, opening at $115 and jumping to $131.25. It closed on March 28 at $136.75 — a gain of 18.9%.
Based on projected earnings before interest, taxes and depreciation, that would imply a forward P/E multiple of 12.
The company projected 2024 sales at $34 billion to $35 billion with 2025 revenue rising by mid-single digits percent. Free cash flow this year was projected at $700 million to $1.1 billion, rising to $1.2 billion to $1.8 billion in 2025.
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Barron's noted that the when-issued performance affected GE as well. Wells Fargo analyst Matthew Akers bumped his target price for GE Aerospace to $200 from $177.
GE was co-founded in 1892 by Thomas Edison and was an original member of the Dow Jones Industrial Average. It evolved into hugely successful conglomerate by the 1980s and 1990s under the late Jack Welch.
The stock peaked in 2000 as Welch retired, and the company fell on hard times, needing a Warren Buffett bailout to survive just the after the 2008-09 financial crisis. It struggled until 2018 when Larry Culp, a director, was asked to be CEO.
Culp cut spending, and GE paid down more than $100 billion in debt. The company sold businesses that didn't work.
Then, Culp decided to break the company into smaller pieces. The moves have won him many Wall Street fans and may well make his personal GE holdings worth more than $1 billion.
The stock is up 37.5% this year. It jumped 95.6% in 2023, a better performance than Apple (AAPL) , Alphabet (GOOG) and Microsoft (MSFT) .
Why the other stocks aren't as robust
In addition to size and growth issues, the stocks being pushed into less prestigious indexes — or out entirely — have been experiencing challenges of late thanks to the covid-19 pandemic and other forces.
The prices of the stocks reflect those struggles.
- VF closed up 1.7% on March 28 at $15.34 but is down 18.4% this year.
- Dentsply Sirona was up 0.4% to $33.19 but is off 6.7% this year.
- Fox Factory Holding rose $3.8% to $52.07 but has dropped 22.8% this year.
- ModivCare was down 5.9% to $23.45 and has slid 46.7% this year.
- EW Scripps rose 0.8% to $3.93 but has slumped 50.8% this year.
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