One great way for companies to expand growth, earnings and product offerings beyond internal organic expansion is to go the takeover route. While sometimes it can prove to be dilutive, especially if the majority of the deal is done in stock, it can also prove to be accretive by adding earnings immediately. A recent large and very comprehensive report from RBC Capital Markets spotlighted hundreds of stocks in multiple sectors that are small caps, defined as $4 billion in market cap and under, that could have a very real chance of being takeover candidates.
We screened the RBC list of takeover candidates for the higher profile and more well-known stocks. These may prove to be solid companies to own, even if they ultimately are not bought or merged. With that in mind, buying any of these companies is for accounts with a very high risk tolerance.
Babcock & Wilcox Co. (NYSE: BWC) just released earnings for the fourth quarter, and they were impressive. The company is a leader in clean energy technology and services, primarily for the nuclear, fossil and renewable power markets, as well as a premier advanced technology and mission critical defense contractor. It has locations worldwide and employs approximately 11,600 people, in addition to joint venture employees located at projects around the world. It may be a target for a large domestic utility company like Duke Energy.
Babcock & Wilcox shareholders are paid a 1.3 % dividend. The Thomson/First Call consensus price target for the stock is $34.83. The stock closed trading Thursday at $31.76, up almost 6%.
First Solar Inc. (NASDAQ: FSLR) has announced a proposed yieldco with another takeover candidate on the list this week, which is a positive for both companies. First Solar’s Components segment designs, manufactures and sells solar modules, such as CdTe modules that convert sunlight into electricity for project developers, system integrators and operators of photovoltaic (PV) solar power systems. Its Systems segment provides turnkey PV solar power systems or solar solutions, such as project development; engineering, procurement and construction; operating and maintenance; and project finance services to investor-owned utilities, independent power developers and producers, commercial and industrial companies, and PV solar power system owners. A large utility or another solar company like SunEdison could be a potential buyer.
The consensus price target is at $63.15. First Solar shares closed trading Thursday at $58.68.
JinkoSolar Holding Co. Ltd. (NYSE: JKS) is a global leader in the solar industry, with production operations in Jiangxi and Zhejiang Provinces in China and sales and marketing offices located around the world. The company has built a vertically integrated solar product value chain, with an integrated annual capacity of 2.0 gigawatts each for silicon ingots, wafers and solar cells and 2.1 gigawatts for solar modules. The company also sells electricity in China. A large solar company or perhaps a big tech company like Apple looking to have a solar footprint in China may be a potential suitor.
The consensus price objective is set at $34.57. The stock closed on Thursday at $21.80 a share.
SunCoke Energy Inc. (NYSE: SXC) is the largest independent producer of coke in the Americas, with 50 years of experience supplying coke to the integrated steel industry. Its advanced, heat-recovery cokemaking process produces high-quality coke for use in steelmaking, typically captures waste heat for derivative energy resale and meets or exceeds environmental standards. A large steel producer like U.S. Steel or Nucor may be a possible purchaser.
SunCoke investors are paid a 1.3% dividend. The consensus price target is $23.50, and shares ended Thursday at $17.73.
SunPower Corp. (NASDAQ: SPWR) and First Solar announced this week plans to jointly form a publicly traded yieldco, which may make both companies a combined takeover target. SunPower offers solar power products, including panels, balance of system components and inverters. It also designs, manufactures and sells high-performance rooftop and ground-mounted solar power systems, as well as utility-scale PV power plants. In addition, the company offers operations and maintenance services, including remote monitoring, preventative and corrective maintenance services, as well as rapid-response outage restoration and inverter repair services.
The consensus price target is set at $41.08. The stock ended trading on Thursday at $32.06.
With the huge move towards clean and renewable energy, consolidation seems like a no-brainer. It would provide a company looking to get into the sector an easy bolt-on way to ramp up. These top stocks could be targets, and the smaller market caps make it very feasible for a large corporation.