Organan Conclusion

Organon, Merck’s upcoming spin-off will begin trading on June 3, 2021. I’m looking forward to that date as I believe there will be indiscriminate selling pressure. I think the stock is worth ~$33 (combination of DCF and comps) below where it’s trading now in the when issued market. The company will see a decline in revenue this year, but then expects modest growth (1-3%). It will generate significant cash flow and will eventually pay a dividend. I think Kontoor Brands (KTB), a 2019 small cap spin-off from large cap VF Corp (VF), is a potential analogue. KTB sold off ~33% after its spin-off. The one thing that KTB had going for it was that we knew that it would pay a dividend (it had been disclosed in the Form 10). As such, it snapped back quite quickly once the dividend was declared. Organon may not snap back quite as fast. I would like to buy in the mid to low $20 range.