Cendant Corp Spins Off a Fat Pitch – Realogy Corporation (H)

Fat Pitch Financials has finally dusted off the old bat and taken a swing at a pitch. Yesterday, I purchased my first spinoff, Realogy Corp (H) for $25.05. Realogy is one of the two new spinoffs from Cendant Corp (CD). The other company to be spun-off was Wyndham Worldwide Corp. (WYN).

The Business

Realogy brands

Realogy is the spinoff of Cendant that contains all the real estate service businesses that were contained in Cendant. These businesses include the leading real estate franchises:

  • Century 21
  • Coldwell Banker
  • ERA
  • Sotheby’s
  • The Corcoran Group

In addition, Realogy will also include a settlement group, TRG; a relocation service business, Cartus; and brokerage, NRT. These operations provide Realogy with a set of solid business franchises. Brand recognition plus high switching costs for franchisees I believe give Cendant a significant economic moat.


Henry R. Silverman will be Chairman and CEO for Realogy.  He was the Chairman and CEO of Cendant originally.  I take this as a good sign, since he could have selected any of the four companies that Cendant has been broken into. I did notice that at this point he will not be issued any stock options. However, stock options are a significant portion of the compensation for the other executive members of the company. Mr. Silverman has been paid large performance bonuses in the past which is a good sign.  We want to see that management incentives are aligned with shareholders.  Mr. Silverman does own over 3 percent of Cendant’s shares so he will likely also have a large stake in Realogy.  Normally, I would have liked to see more stock option incentives associated with the spinoff, but this may still happen at a latter date. 

Financials and Valuation

I determined using the pro forma earnings that Realogy began trading with a PE of 12.  Using a very simplistic valuation model I also figured that at a minimum Realogy was worth over $28 per share.  Compared to the Wyndham numbers, Realogy seemed to be a much better value.

I believe that the recent down turn of the real estate market, has lowered this companies valuation by the market. No one wants to own real estate related stocks right now. That combined with the spinoff that may have caused some fund owners to sell off these new shares has resulted in this fat pitch opportunity.

I tried to add Realogy to my Marketocracy fund, but the Marketocracy website still did not have the symbol H in their system properly even after the market closed. I’m hoping that they have their stock symbols updated tomorrow so I can add shares of Realogy to my FPF Fund and be able to publicly track my performance.

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