Tech Spec: Screening for Tech M&A Candidates

On March 9th, we sent a note to our clients a note entitled, “Eye on Value: Companies Trading at Discount to Cash”.  Since that time the screen in aggregate has returned ~34%, with Eastman Kodak being the top performer at +~94%. 

 

Not surprisingly given the move in the market over that period, every stock in the screen registered a positive return.  To quote Keith indirectly, our screen was either good, or lucky, as it outperformed the market by over 1,000 basis points.

 

We ran a new screen today, which we have called, “Tech Spec”.  Our Head of Technology research, Rebecca Runkle, wrote today in her morning piece, “M&A is what matters now.”  In effect, she is looking at the IBM / Sun deal as an early indicator of the re-emergence of tech M&A.  While Rebecca would obviously offer a more nuanced view of what company is next to be taken out, probably focusing on the franchise value of the company and such; we macro guys are simple folk.

 

As a result, I put together a tech spec screen based on the following parameters: cheap, good balance sheet, and market capitalization south of $1.0BN.  Since tech is working and M&A in tech is likely to pick up on a y-o-y basis, especially since, as Rebecca also wrote, “bid-ask spreads have already collapsed (0.9 TTM sales versus 1.9 a year ago, according to The 451 Group)”, this seems like the good area to look for some beta and to play the potential thematic increase in technology M&A.

 

According to Capital IQ, the group on average trades at less than 4.0x EV/EBITDA, less than 1.0 FV / Sales, and all the companies have net cash balance sheets.  Value investor’s values, to be sure. Incidentally, all of these companies fell under Capital IQ’s technology classification. 

 

Happy hunting!

 

Daryl G. Jones
Managing Director

 

Tech Spec: Screening for Tech M&A Candidates - tech29


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more