NEW YORK ( TheStreet) -- With an eerie quiet on the U.S. deals front, takeover premiums have been wiped from many companies in the M&A rumor mill. But for some highly-shorted companies, valuations may be at a point where takeover interest is more likely, making for a risky short even if fundamentals continue to deteriorate. In a screen of heavily shorted stocks with low enterprise values relative to earnings before interest, taxes, depreciation and amortization, information provider Data Explorers was able to identify 61 companies with a short interest over 10% and swooning valuations. Data Explorers screened around the world for highly shorted companies with low or falling valuations and a market cap above $1 billion.
"Companies which have seen a fall in their share prices in the last year implies profits for short sellers, yet their low valuations could make them a potential acquisition target. Should this happen, a short seller would be exposed to any takeover premium offered by bidders," wrote Data Explorers in a March 3 report. Data Explorers arrived at over 60 names scattered across the world, however five stand out as battleground stocks either because of their valuation, short interest or previous M&A speculation. Here's a look at three shorted stocks that may be too cheap to sell, according to Data Explorers For more on deal activity and trends, see
10 Companies Primed for a Post-Bankruptcy Comeback and 5 Tough Sells in the Tech Sector. For more on M&A bankers and pending deals, see why 2012 deals hinge on Goldman's idea of fairness . 3. Veeco Instruments ( VECO) As of Data Explorers' screen published earlier in March, light emitting diode LED manufacturer Veeco Instruments has both a low enterprise value to EBITDA and a high short interest that can be a dangerous cocktail to shorts, especially if M&A rumors resurface. The Plainview, N.Y.-based designer of LED and solar systems currently has a low enterprise-value-to-EBITDA ratio of 2.0 to go with a short interest that's over 35% of outstanding shares, making it the most shorted company among possible takeover targets highlighted by Data Explorers. Already, a near-40% 2012 surge in Veeco Instruments shares has likely been tough to bear for shorts. Nevertheless, huge questions remain for the company's 2012 earnings, as it tries to curtail an over-40% share lull in the last 12 months. Analysts polled by Bloomberg give Veeco Instruments a price target of $27.40 a share, on an expected plummet in 2012 sales and profitability. Veeco is expected to see its sales fall by nearly 50% to $534 million, cutting profits by over two-thirds to $36.71 million, according to consensus analyst estimates. Still, the company's falling stock value could spur an opportunistic private equity or strategic acquisition, according to previous analyst speculation. In 2010, Citigroup analysts noted that Toyko Electron could show interest in U.S. semiconductor leaders like Applied Materials ( AMAT), while it could also look at a LED specialist like Veeco or Ultratech ( UTEK). After a wave of semiconductor M&A, including a multibillion-dollar acquisition of Varian Semiconductor by Applied Materials, Veeco re-emerged as a takeover candidate. Exane analysts pointed to Veeco and European peer Aixtron as possible takeover targets in the LED space, with KLA Tencor ( KLAC), Novellus ( NVLS) and ASML Holdings ( ASML) as potential acquirers. Even without an M&A bid for Veeco, the company could continue a 2012 rally after falling roughly 50% in 2012. Oppenheimer technical analyst Carter Worth highlighted Veeco as a company that could benefit from a "bearish-to-bullish" reversal in sentiment in a Feb. 27 note. Earlier in February, Veeco forecast earnings per share below analyst expectations, pushing shares down. Still, revenue expectations were within the range of analyst expectations. Prior to the muted guidance from management, Citigroup had highlighted that Veeco and Aixtron would issue 2012 earnings guidance "well below" estimates, citing more competition in Veeco's metal organic chemical vapor deposition systems from low-cost Asian manufacturers.
2. First Solar ( FSLR)The solar industry pops up in Data Explorers screen of shorted takeover propositions, with struggling First Solar ( FSLR) standing out as the largest name. At a market cap of over $2 billion, First Solar is still the largest U.S. solar manufacturer and one of the largest in the world, even after an over-80% 12-month share plummet. At an enterprise-value-to-EBITDA ratio of below 5 and a short interest of nearly 20%, a strategic or private equity acquirer could smoke out First Solar shorts. A stock that's been above $160 in 2011 and has suddenly fallen so far is logical as a
strategic target for a stronger acquirer. But with shares falling near all-time lows below $30 a share, it looks like a takeover premium has been erased from First Solar's stock. In contrast to other industry peers like SunPower ( SPWRA) and MEMC Electronics ( MEMC), First Solar is still expected to turn a profit through 2012 as solar panel margins continue to fall on increasing Chinese competition, oversupply and a withdrawal of government support to the industry. In late February, the company cut its 2012 earnings guidance, leading to a sharp drop in shares, while it also reported a $4.74 a share fourth quarter loss that was well below $1.02 a share profit expectations, according to analysts polled by Bloomberg. But with shares now at all-time lows and what may be a nadir, long-rumored acquirers may look to cut a deal. In a December article, Bloomberg noted that the world's leading thin-film solar-panel maker may be easier to swallow now that it's market cap fell from levels as high as $25 billion when it was on Goldman Sachs's "conviction buy list." The article cited R.W. Baird analysts who noted General Electric ( GE) and Siemens ( SI) as possible acquirers. Separately, Kaufman Brothers analysts said that the firm could be bought at a 50% premium. Maxim Group analyst Aaron Chew noted that a GE acquisition of First Solar was "more feasible" as the company's shares fell below $50 in November, making a prospective deal worth as little as $5 billion. Since then, First Solar shares have continued to plummet, possibly lowering the takeover price. Also in November, Jefferies analysts pointed to Siemens, Samsung and LG as possible acquirers in the solar space. But significant headwinds remain, including legal and product-related liabilities. Earlier in March, First Solar disclosed a Securities and Exchange Commission investigation into the possibility the company had violated Regulation Fair Disclosure rules with regard to earnings. In addition, First Solar added to warranty charges related to panels it's made for multibillion-dollar solar plant developments, on the possibility that panels underperform in extreme heat. The liability remains to be seen. Overall, analysts polled by Bloomberg expect First Solar to earn $3.6 billion in 2012 revenue, generating $341 million in profits. However, on weak guidance, analyst expectations for first quarter and 2012 earnings have been on a downtrend in recent weeks. Analysts give First Solar shares a $36.90 a share price target.