Friday, November 06, 2009

Star Quality

In the last post “Takeover Temptations” the suggestion was made to look for companies that could be takeover targets. We ran a stock screen based on the characteristics that acquirers might consider enticing. The screen produced 200 companies, which were quickly weeded down to a group of 87 small cap companies. Another filter eliminated companies that we think might not be receptive to an offer and others that are in sectors that are not consolidating for one reason or another.

We ended up with a short list of twelve companies with market capitalizations less than $2.0 billion. All of them appear to be survivors and have begun earlier than most to recover from the economic tsunami that hit every sector over the last year. Strong brand names, solid distribution channels and valuable products appear to be the keys to success - all of which were the stuff that turns the heads of hungry acquirers.

The attraction of this group of twelve may not be obvious at the get-go. For each we identify what gives the company “star quality.” One more thing - these stocks are on-sale!

Ameron International Corp. (AMN: NYSE) - Personal Products - $61.00
Market Capitalization: $576.5 million
Trailing Sales: $598.2 million
Trailing Net Income: $36.7 million (6.1% net profit margin)
Cash Conversion Rate: 19.4%
Debt / Equity: 0.11
Cash / Debt: 312.1
Price / Earnings: 15.2 X (Industry: 16.1 X)
Forward Price / Earnings: 15.5 X
Price / Cash Flow: 8.6 X (Industry: 13.9 X)
Price / Sales: 0.9 X (Industry: 1.3 X)
Star Quality: Ameron kept its dividend and sacked its COO. The operations work will be taken over by other officers in an effort to reduce expenses. Ameron is also shifting its product line beyond water transmission lines to wind towers and other 21st Century “green” infrastructure products.


Anaren, Inc. (ANEN: Nasdaq) - Wireless Communications - $15.00
Market Capitalization: $225.0 million
Trailing Sales: $169.0 million
Trailing Net Income: $11.4 million (6.7% net profit margin)
Cash Conversion Rate: 17.2%
Debt / Equity: 0.24
Cash / Debt: 0.17
Price / Earnings: 18.7 X (Industry: 16.5 X)
Forward Price / Earnings: 13.4 X
Price / Cash Flow: 10.3 X (Industry: 6.2 X)
Price / Sales: 1.3 X (Industry: 2.2 X)
Star Quality: Space and defense products are on fire while wireless lags, leading to temporarily depressed performance. However, Anaren still has a firm grip in customers and market share with a strong product line and high quality service.

Stay tuned! The next two posts will include another ten names.


Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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