Banking & Finance

Tech/Comm Acquisition Target Updates (CSCO, BRCD, NOVL, PGI, STX, WDC, XLK)

Premiere Global Services, Inc. (NYSE: PGI) is one we featured earlier in the year as “an easy bolt-on acquisition for any of the larger communications and behind-the-scenes IT players.” Much of its business has been mistakenly considered legacy communications when that is not the case any longer.  The company just last week announced the divestiture of its Xpedite Systems to EasyLink for $105 million in cash.  Premiere also last week reported third quarter revenues of $142.3 million (including $109.5 million from PGiMeet solutions), earnings from continuing operations of $0.06 EPS and non-GAAP earnings of $0.18 EPS.  Guidance was put at revenue from continuing operations of $107 to $109 million, and non-GAAP earnings of $0.09 to $0.11.  Shares were at $7.18 before earnings, fell to $6.72 after earnings, and are down to $6.35 now.  Shares were at $6.65 and had been down over 30% since the April peak when we covered it in July.

Now the company will effectively be a pure-play on conferencing and enterprise collaboration solutions.  The company is going to pay down debt and may repurchase stock along with investing in core communications technology.  This divestiture makes Premiere a potential stealth M&A target now that it is easier to analyze, and the company had long been overlooked because of its fax business. The $383 million market cap here could make for an easy integration for any of the larger communications providers that want to keep competing against Cisco.

Seagate Technology PLC (NASDAQ: STX) is one we covered among our dirt cheap value stocks in technology even before the rumors were flying high that the hard drive and storage device maker was considering going private (again).  Now shares are up significantly and the valuations are still dirt cheap with a current and forward P/E ratio of under 10.  Ditto for rival Western Digital Corp. (NYSE: WDC).  Both are attractive on valuations, although Western has a leaner balance sheet,

The difference between Seagate and the others mentioned here is that Seagate IS in talks to go private with a private equity firm.  Are flash-drives a threat ahead?  Sure, but imagining that neither of these storage leaders will play in the field seems unlikely even if they are not leaders there.  There is also a poor earnings trend with no guidance as you would expect from its low valuations.  The problem is that the cost of 1 terabyte of external storage is now under the $100 mark, and this is likely to at a minimum keep fears up that margins will decline.  Seagate traded nearly at $10 during the August lows and traded up to almost $13 in early October.  Now that the buyout talks have been confirmed, shares are now north of $15.00.  We have no updates on the merger as of yet, but we continue to see Seagate as likely bait.

Technology Select Sector SPDR (NYSE: XLK) has been on fire rising from under $21 at the end of August to above $24 currently.  Keep in mind that the top six components here account for roughly 45% of the entire ETF weighting.  The index ETF recently hit a 52-week high that is now technically a 2-year high and you have to go back to early-2008 to get higher share prices now.

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JON C. OGG

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