With Valentine's Day yesterday, I will take this opportunity to look at companies that could potentially match up with smaller-cap firms. There are many companies looking for ways to boost their market share, and I believe the companies below represent the best chances for an acquisition. I picked these companies because they are all key players within their dynamic, rapidly changing markets.
The ceramic manufacturer perhaps best known for the body-armor it produces, Ceradyne (CRDN), has created great expectations with analysts following three very good quarters last year. Analyst expectations are for sales growth of 31% and earnings per share of $0.61, up from $0.44.
The industrial products company, Crane Co. (CR), holds divers business segments in aerospace and electronics, engineered materials, such as fiberglass paneling and telecom equipment, merchandising systems (vending machines), fluid handling, and sensing and control systems. The company serves an equally diverse array of industries: chemical industries, commercial construction, food and beverage, general and commercial aviation, and power generation.
Ceradyne is more than just a producer of body-armor, although the company did make notable inroads against larger competitors. Apart from its defense related products its advanced technical ceramic products are applied in the automotive, electronics, manufacturing, medical, nuclear and solar power, and oil and gas industries. Ceradyne will dovetail nicely with Crane's existing divisions.
Ceradyne currently trades around $33 per share and its market capitalization is $834.72 million. With the positive outlook and expectations, a bid could be over the $40 mark.
Some of the most lucrative North American shale reserves are held by GeoResources, Inc. (GEOI), primarily in the Bakken Shale and Eagle Ford Shale. It's the company's developed wells in the Bakken Shale that have been particularly profitable, producing nearly 290 barrels of oil equivalent per day, which at today's oil price is a very good return on investment.
GeoResources produces over 5,000 barrels of oil equivalent per day and with its capital expenditure budget for 2012 estimated to be between $188 and $223 million there could be a significant increase in production to as much as 7,500 barrels of oil equivalent per day.
Petrohawk Energy had the first presence in Eagle Ford Shale and held significant reserves in the shale. This was the likely motivation when BHP Billiton Limited's (ADR) (BHP) acquired the company in July 2011.
Although not of the same value as the $12.1 billion that was paid for Petrohawk, GeoResource has valuable, productive assets and only a market capitalization of $804.47 million. BHP could again enter the fray and an offer could exceed $1 billion or around $40 per share.
The Apple of its eye
Preferred camera supplier for the iPhones made by Apple, Inc. (AAPL), OmniVision Technologies, Inc. (OVTI), had a tough time of it when it lost out to Sony Corp (ADR) (SNE) to supply Apple's iPhone 4S cameras. Even from earlier last year the stock had been in decline, losing more than 60% from July to December.
From the beginning of this year the stock has reversed its fortunes, gaining approximately 25% to where it now trades around $15. It also appears that the company has its mojo back; its 10 megapixel sensor being awarded top honors as the best image sensor of 2011.
Nokia Corp (ADR) (NOK) has been under pressure itself and had to resort to cutting the prices on its smartphones to stay competitive with top of class manufacturers Apple, Research in Motion(RIMM), and Google (GOOG) as its market share steadily slid in recent years. Getting one of the top camera manufacturers in its corner could boost its chances of survival.
OmniVision is trading at levels last seen in March 2010, despite the stock's recent surge. Meaning that at a low price-to-book ratio of 1.11 and a price earnings ratio of 6.66 compared with an industry average of 14.22, it comes quite cheap at the moment. A bid could be around $20.
In the cloud they'll meet
The slowdown of the telecom sector has affected all its players, but Broadsoft (BSFT) still has some appeal. The company provides software that enables fixed-line, mobile and cable service providers to deliver voice and multimedia services over their Internet protocol-based (IP-based), networks. It enables its service provider customers to provide enterprises and consumers with a range of cloud-based, or hosted, IP multimedia communications, such as hosted IP private branch exchanges (PBXs), video calling, and converged mobile and fixed-line services.
The two subsidiaries of Verizon Communications, Inc. (VZ) both play in the communication sector, Domestic Wireless producing wireless voice, data, and equipment and Wireline supplying voice, internet access, long distance and other services. It is through the application of Broadsoft's software that the different services potentially meet.
Boradsoft's stock is trading around $32 and its market capitalization is $885.52 million. An offer could test the $40 mark.
Kulicke and Soffa Industries, Inc. (KLIC) is a manufacturer of capital equipment used to assemble semiconductor devices, mainly semiconductor wire bonding assembly equipment. Its customers are primarily semiconductor device manufacturers, outsourced semiconductor assembly and test providers, other electronics manufacturers, and automotive electronics suppliers.
The acquisition of Novellus Systems Inc. (NVLS) by Lam Research Corp. (LRCX) following on the Applied Materials, Inc. (AMAT) buyout of Varian Semiconductor could spark off fresh merger and acquisition activity in this sector.
A relatively big player in the industry with a market capitalization of $8.21 billion, KLA-Tencor Corp (KLAC) has yet to make any recent acquisitions. Kulicke's healthy revenue and excellent margins could see it come into its bigger competitor's sights.
Kulicke is trading around $11 per share and its market capitalization is $831.21 million. We could see an offer around $15 per share.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.