What happened
Shares of Griffon (GFF +3.43%) soared on Monday as the company started looking at "strategic alternatives," including but not limited to a sale of the company or a spinoff of some of its operating segments. The mini-conglomerate's stock was trading 23.3% higher at 1:25 p.m. ET.
So what
The company behind product lines such as Clopay garage doors, ALES gardening tools, and Telephonics defense surveillance systems is reviewing its options for maximizing shareholder value. The Telephonics division is already being sold to TTM Technologies (TTMI +1.65%) in a $330 million all-cash deal announced last month and scheduled to close in the current fiscal quarter.
Griffon may continue splitting itself up. It may also find a buyer for the entire remaining company. Other options include stock buybacks or an accelerated dividend program. The company may also stay the course if no significantly better alternative is found.
NYSE: GFF
Key Data Points
Now what
Management said it sees a "profound disconnect" between Griffon's business results and its current stock price. That argument makes sense in light of Griffon's robust results.
The company significantly outperformed analysts' estimates for its fiscal 2022 second quarter, which ended March 31. It posted earnings of $1.37 per share while the average analyst was looking for $0.33 per share. Even though the stock is setting fresh multidecade highs today, shares are still trading at just 0.6 times sales and 13 times earnings.
Image source: Getty Images.
It remains to be seen how much shareholder value Griffon might be able to extract from the company by continuing to sell off units or finding a buyer for the whole conglomerate. Now that the defense electronics business has found a new home, the remaining operations could make sense as an acquisition for home improvement retailer Home Depot (HD +1.07%), which carries a wide range of Griffon's garage doors, ceiling fans, gardening tools, and more.
The strategic review doesn't come with a hard deadline, but I suspect we'll hear more about this process over the next couple of quarters.
