ThinkEquity is upping their target on PeopleSupport (NASDAQ:PSPT) to $24 from $18, saying the company is ripe to be acquired, and an acquirer could be willing to pay an EV/EBITDA multiple of 15x its new 2008 estimate, which is how they arrive at their new $24 price target.
PSPT shares are cheap, with roughly $5.45/share in net cash and a current EV/EBITDA multiple of only 6.3x firm's new FY'08 EBITDA estimate. Inthe case of private equity, eliminating $5-7M in public company expenses and improved operating efficiencies could easily improve cash flow by another $5-10M annually. In the case of M&A, the firm believes multiple companies could see value in PSPT, specifically the large Indian outsourcing vendors that they believe are searching for new growth opportunities outside of India.
Notablecalls: PeopleSupport last week rejected IPVG and AO Capital Partners' unsolicited offer to acquire a majority stake for $15 per share. Over the weekend, RBC Capital upped their target to $19 from $15, saying the stock should go higher here but now we have ThinkEquity's Nate Swanson out with a Street high $24 target. That's bound to generate plenty of buy interest as PSPT has been hugging around the $14 level for the past couple of weeks. I suspect we are going to have a breakout day today!
I like the outsourced BPO market a great deal. I think eTelecare Global Solutions (ETEL) remains one of the undiscovered gems in the space.