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Exelis Upcoming Spinoff Is A Value Proposition.

|Includes: Exelis Inc. (XLS)

Exelis, XLS, is in the process of spinning off a subunit that will be called Vectris. It is uner the radar as it is a relatively unknown generic sounding company that however does a great deal of profitable business with the Pentagon and the defence dep'ts of allies of the US as well as others. The subunit about to be spunoff is principally involved in the launching of hardware into space as well as other fixed location work done in Colorado mainly with the strategic missile force. It is likely that the spinoff will represent 20 % or so of the overall company and thus a one share for every five Exelis shares is likely to be given. Forbes gives a post spinoff value of 23 $ per share of XLS. Is this a sum of the parts calcluation or is it a 23 $ for XLS and whatever one gets after the Vectris spinoff a bonus?

At any rate, the spinoff is likely to be bought out by another defence contractor if only to quickly acquire a closer relationship with the Pentagon. This is likely to represent a total sum of the parts share value of possibly 25 $ in total by autumn. Given the current share value, this represents good upside with relatively low risk given that it does pay a dividend.

The company is held mainly by institutional investors, more than 80% and the company generally goes in one direction or the other depending upon sentiment. The recent decline can be attributed to the likely sentiment of frustration that the company did not provide guidance about the upcoming spinoff at it's last earnings report.

This is about to be rectified in the near future as Exelis is expected to report on July 28th. They will have to give some kind of guidance in terms of how the company will be broken up as they stated in their prior earnings report that Vectris will be spunoff in the summer.

The stock ha treaded water awaiting firm guidance as to how exactly the spinoff will come about and what assets will be transferred to the sub unit and what each of their respective business plans will be.

Disclosure: The author is long XLS.