Micro-Cap Symmetricom (SYMM) Explodes on Microsemi (MSCC) Acquisition

NEW YORK (TheStreet) -- Micro-cap clock technologies developer Symmetricom (SYMM) has doubled in morning trading, following the news a day earlier of a buy-out from Microsemi (MSCC). Symmetricom shares exploded 51.4% to $7.22, while Microsemi climbed 3.8% to $26.52 as of 9:45 a.m. EDT.

Microsemi, a semiconductor manufacturer, offered Symmetricom $7.18 a share (a 50% premium on Monday's close), or $230 million in an all-cash deal. The combined companies will create the industry's largest end-to-end precise timing portfolio.

"From source to synchronization to distribution, Microsemi will offer an end-to-end timing solution for an expanded range of markets, driving increased dollar content opportunity and revenue growth," said James J. Peterson, Microsemi's CEO, in a statement on the acquisition.

Microsemi anticipates an additional 22 cents to 25 cents to its full-year 2014 earnings as a result of the acquisition. Analysts currently expect $1.36 a share for FY14, according to Thomson Reuters.

TheStreet Ratings team rates Microsemi Corp as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate Microsemi Corp (MSCC) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, expanding profit margins, largely solid financial position with reasonable debt levels by most measures, solid stock price performance and impressive record of earnings per share growth. 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 net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Semiconductors & Semiconductor Equipment industry. The net income increased by 124.9% when compared to the same quarter one year prior, rising from $8.13 million to $18.28 million.
  • The gross profit margin for Microsemi Corp is rather high; currently it is at 59.89%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, MSCC's net profit margin of 7.53% significantly trails the industry average.
  • MSCC's debt-to-equity ratio of 0.70 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 2.89 is very high and demonstrates very strong liquidity.
  • Powered by its strong earnings growth of 122.22% and other important driving factors, this stock has surged by 33.73% over the past year, outperforming the rise in the S&P 500 Index during the same period. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
  • Microsemi Corp reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. 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, Microsemi Corp swung to a loss, reporting -36 cents a share vs. 63 cents a share in the prior year. This year, the market expects an improvement in earnings ($1.95 vs. -36 cents).

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