In today's analysis we look at five companies that offer strong future prospects that will attract the attention of bigger players. Two of the companies have crossed the line from small cap into mid cap territory, but they have not grown enough to be safe from potential takeovers yet.
Quicksilver Resources, Inc. (KWK) is an independent energy company primarily engaged in the exploration and production of natural gas, natural gas liquids, and oil onshore in North America.
Natural gas is a long-term play, but big energy companies are already heavily invested in the long-term prospects of the commodity. Forbes has published data from an Exxon Mobil (XOM) study, which predicts that natural gas will overtake coal as the number two energy source by 2025. BP (BP) has also invested in natural gas at a time when low gas prices are driving share prices lower.
Since July of last year Quicksilver has lost nearly 60% of its share price from over $14 to where it trades now around $5. Quicksilver's market capitalization is $973.67 million, but its enterprise value is $3.01 billion. It does however have more than $2 billion debt and I don't expect an offer to reach the $3 billion mark. An offer will be around $10 for a total value of approximately $1.7 billion.
Bottomline Technologies (EPAY) provides collaborative payment, invoice, and document management solutions to a range of corporations across all sectors. Its software is used to automate and manage processes and transactions involving payments, invoice receipt, collections, cash management, risk mitigation, and document management. It either offers hosted or Software as a Service (SAAS) solutions, or onsite software that runs at the customer's location.
SAP AG (SAP) has made a host of acquisitions since 2007 and now it'sdominating the business intelligence software market having grown its market share from 7.9% in 2007 to 30% currently. SAP offers enterprise resource planning (ERP) financial management software that offers solutions from daily cash flow management to your annual financial close. Notably it doesn't include transaction processing.
Bottomline currently trades around $28 and its market capitalization is estimated at $892 million. Its fourth quarter financial results beat analyst expectations with its earnings per share, revenue, and operating margins all growing steadily, making an offer above its market capitalization all but a foregone conclusion. I firmly believe an offer will be made between $36 and $40 per share.
Synaptics, Inc. (SYNA) develops custom-designed human interface solutions that enable people to interact with a range of electronics, including mobile computing, communications, and entertainment devices. The Company provides human interface solutions for navigation, cursor control, and multimedia controls for many of the world's premier PC manufacturers. In addition to notebook applications, other PC product applications for its technology include peripherals, such as keyboards, mice, and monitors, as well as remote control devices for desktops, PCs, and digital home applications.
Lenovo (LNVGY) is a personal technology company that operates in more than 160 countries. It has also taken over the mantle as the world's second largest PC vendor. The company develops, manufactures and markets reliable, high-quality, secure and easy-to-use technology products and services. Its product lines include Think-branded commercial PCs and Idea-branded consumer PCs, as well as servers, workstations, and a family of mobile Internet devices, including tablets and smart phones. The acquisition of Synaptics will be the next step to grow its market share in the hardware market.
Analysts are predicting earnings per share of 14% for Synaptics and the company has very low debt levels. An offer is sure to top its market capitalization of $1.22 billion. I strongly believe it will be in the order of $45 to $47 per share, up from around $38 where it is currently trading.
Nelnet, Inc. (NNI) is an education services company with four segments: Student Loan and Guaranty Servicing, Tuition Payment Processing and Campus Commerce, Enrollment Services, and Asset Generation and Management. Its customers include students and their families; colleges and universities; private, faith-based, and other K-12 institutions; lenders, servicers, and state agencies in education finance.
SLM Corporation (SLM), known as Sallie Mae, is in the business of student loans: it originates, services, and collects loans made to students and/or their parents to finance their studies. It has two remaining segments: Consumer Lending segment and the Business Services segment. Effective July 1, 2010 its Federal Family Education Loan Program (FFELP) Loans segment became obsolete as the program was cancelled.
The loss of revenue from the scrapping of the Federal Loan Program has forced Sallie Mae to source income elsewhere and my research points to it that Nelnet is firmly in its sights.
Nelnet currently trades around $26 and an offer to take over the loans on its books will come at a substantial premium. Expect nothing less than $33 per share, but the price could go as high as $38 per share.
Cloud Peak Energy Inc. (CLD) has three surface coal mines, two of which, the Antelope mine and the Cordero Rojo mine, are in Wyoming and one in Montana. It produces sub-bituminous steam coal with low sulfur content and sells its coal primarily to domestic electric utilities.
Peabody Energy Corporation (BTU) acquired Macarthur Coal Limited (AU) in December of last year. This play allows Peabody greater exposure to developing economies through its Australian acquisition as U.S. electricity supply is becoming less and less dependent on coal.
While Cloud Peak in the past primarily sold to U.S. electricity suppliers,exports of U.S. coal has increased as local demand has decreased, and export facilities have been secondary beneficiaries to this. Asia, hungry for fuel, will cause few of the problems for coal miners the U.S. and Canada is causing. In Cloud Peak, Peabody will acquire low cost surface mines with excellent safety credentials.
Cloud Peak currently trades around $18 per share for a market capitalization of $1.12 billion, but I expect an offer to be between $26 and $30 per share for Cloud Energy's excellent reserves.