Please help me understand why the special dividend and spin out of preferreds would cause an overhang to the stock?
Also, how long would said “overhang” (implying sideways if not downward momentum) last?
The increased share count for LMN relates to the conversion of preferred shares by CSU, and this was disclosed a year ago. But the amount of the dividends accrued but unpaid on such shares was unknown last year, and was recently disclosed last month - this amount is US$87M, and the Board has decided to satisfy the payment of the dividend through the issuance of additional subordinate shares rather than cash. A lot of this information should have been effectively priced into the stock, as most details were known well in advance, and for this reason it is best to view LMN's market cap and valuation metrics on a fully-diluted basis.
TOI underwent a similar setup in 2022, however, the true 'overhang' of this on its price during 2022 is difficult to separate from what was a tough market for small technology stocks. We feel that most of TOI's negative price action in 2022 is actually related to a down market for high-growth, small tech stocks, rather than its share structure.
Therefore, we do not expect LMNs price to follow a similar pattern to TOIs from 2022 after the share conversion, as the market backdrop is wildly different, and we feel LMNs fundamentals will continue to drive its price action.