NEW YORK (TheStreet) -- Shares of Sapient Corp. (SAPE) are surging this morning, up 42% to $24.60 in pre-market trade, after it was reported that Publicis Group (PUBGY) agreed to pay $3.7 billion for the global services company, moving the third-largest advertising company deeper into digital offerings and the U.S. as it moves past a failed merger with Omnicom Group (OMC) - Get Report , Bloomberg reports.
Sapient stockholders will receive $25 in cash for each share, the companies said today, a 44% premium to Sapient's closing price last Friday.
Publicis is paying 19.2 times Sapient's earnings before interest, taxes, depreciation and amortization. That compares with a multiple of 14.5 times for similar targets over the past five years, according to Bloomberg data.
TheStreet Ratings team rates SAPIENT CORP as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate SAPIENT CORP (SAPE) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, increase in net income, increase in stock price during the past year and notable return on equity. We feel these strengths outweigh the fact that the company shows weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 7.6%. Since the same quarter one year prior, revenues rose by 16.0%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
- SAPE has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. To add to this, SAPE has a quick ratio of 2.14, which demonstrates the ability of the company to cover short-term liquidity needs.
- The net income growth from the same quarter one year ago has significantly exceeded that of the IT Services industry average, but is less than that of the S&P 500. The net income increased by 2.2% when compared to the same quarter one year prior, going from $22.79 million to $23.29 million.
- SAPIENT CORP reported flat earnings per share in the most recent quarter. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, SAPIENT CORP increased its bottom line by earning $0.55 versus $0.41 in the prior year. This year, the market expects an improvement in earnings ($0.62 versus $0.55).
- Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.
- You can view the full analysis from the report here: SAPE Ratings Report