While a major layoff announcement can result in some unfavorable press for a company over the short term, Wall Street actually looks favorably upon corporate restructuring. In the eyes of analysts, a leaner and more focused workforce often results in a boost to the bottom line. Additionally, a company can benefit from divesting itself of non-core segments to refocus on its key business. Therefore, playing a long-term call option on a company that's in the midst of restructuring can result in a nice payoff as the turnaround begins to take place.
In the same vein as general restructuring initiatives, a changing of the guard at a company's helm can make a significant impact on a company's operations and share price. When looking for option plays based on new-CEO situations, it is critical to make sure 2 conditions are in place before one can expect a longer-term uptrend:
Very often, however, it becomes difficult to satisfy the first point without also encroaching on the second. A proven track record of success can naturally lead to great expectations from Wall Street for a sea change in the company's performance.
For example, if ABC Corp. gained 300% in 5 years under the aegis of Chief Executive John Johnson – who implemented a number of successful cost-cutting and margin-boosting initiatives during his tenure – those same happy investors may be all too eager to buy into XYZ Corp. shares when Johnson takes over the CEO spot at that company.
While the installation of a new chief executive – or the sale of a non-core business division – can give a stock an immediate short-term boost, it's not a given that these changes can result in long-term gains. The efficacy of the turnaround will be reflected in the company's bottom line in the months, quarters, and fiscal years to come. Ongoing positive results can lend the stock continuing upward momentum.