It happens every year, and 2016 won’t be any different. Larger companies looking to add to growth, in addition to that of the organic or internal variety, scan the field for purchases and acquisitions that are easy to bolt on and could add returns in a timely fashion. This year the process may even speed up some as the market sell-off that happened through the first two months may have already put some companies in the sights of acquirers, despite the recent market rally.
In what is a yearly and very all-encompassing report, the analysts at RBC again go through every sector looking for possible buyout candidates. Last year the company’s takeover screens yielded 29 candidates that eventually were acquired over the following 12 months. With the industrials a favorite sector at many of the top firms we cover this year, we thought the RBC list of potential candidates looked intriguing.
American Axle & Manufacturing
This smaller industrial is a favorite at many of the Wall Street firms we cover. American Axle & Manufacturing Holdings Inc. (NYSE: AXL) is a world leader in the manufacture, engineering, design and validation of driveline and drivetrain systems and related components and modules, chassis systems and metal-formed products for light trucks, sport utility vehicles, passenger cars, crossover vehicles and commercial vehicles.
In addition to locations in the United States (Indiana, Michigan and Ohio), AAM also has offices or facilities in Brazil, China, Germany, India, Japan, Luxembourg, Mexico, Poland, Scotland, South Korea, Sweden and Thailand.
The stock trades at 3.9 times enterprise value (EV) to EBITDA and gross margins of 17%. These are crucial metrics that RBC uses when looking for potential buyout candidates. AAM also boasts EBIT margins of 10%. The Thomson/First Call consensus price target for the stock is $19.65. The shares closed most recently at $14.78 apiece.
Cooper Tire & Rubber
This top company hit our insider buying screens over the course of the first quarter. Cooper Tire & Rubber Co. (NYSE: CTB) is the parent company of a global family of companies that specializes in the design, manufacture, marketing and sale of passenger car and light truck tires. The company and its subsidiaries also sell medium truck, motorcycle and racing tires. Cooper’s headquarters are in Findlay, Ohio, with manufacturing, sales, distribution, technical and design operations within its family of companies located in more than a dozen countries around the world.
The company trades at 4.2 times EV to EBITDA and sports a 25% gross margin figure, along with a 14% EBIT margin. The consensus price target is $29, and the stock closed Wednesday at $36.59.
This is another small cap industrial that has hit our insider buying screens in the past. ITT Corp. (NYSE: ITT) is a diversified leading manufacturer of highly engineered critical components and customized technology solutions for the energy, transportation and industrial markets.
Building on its heritage of innovation, ITT partners with its customers to deliver enduring solutions to the key industries that underpin our modern way of life. This work is made possible by the talent and innovation of committed ITT employees in more than 35 countries who create trusted products and brands such as Goulds Pumps, KONI shock absorbers, Cannon connectors and Enidine energy absorption devices.
ITT recently announced its will open a new North American friction manufacturing facility in Silao, in Mexico’s Guanajuato state, in 2017. The facility will expand ITT’s global production capability for highly engineered brake pads for the automotive industry. Preliminary brake pad production is expected to begin in late 2017, with full rate series production planned for the first quarter of 2018.
The stock trades at 7.4 times EV to EBITDA, has a 33% gross margin number and posts a 13% EBIT margin. The consensus price target is set at $38. Shares closed Wednesday at $36.74.
Kulicke and Soffa
This top company made the RBC list last year, and it is once again a possible target. Kulicke and Soffa Industries Inc. (NASDAQ: KLIC) is a global leader in the design and manufacture of semiconductor, LED and electronic assembly equipment. As a pioneer in this industry, the company has provided customers with market leading packaging solutions for decades. In recent years, it has expanded its product offerings through strategic acquisitions and organic development, adding advanced packaging, advanced SMT, wedge bonding and a broader range of expendable tools to its core ball bonding products.
Kulicke and Soffa trades at 5.1 times EV to EBITDA and has gross margins of 48% and 7% EBIT margins. The consensus price target is $14. The stock closed on Wednesday at $10.95.
While there is no guarantee that any of these companies get purchased, they all stand out on their own very strong metrics. While only suitable for aggressive growth accounts, they make good sense as takeover candidates or standalone entities.