The question shareholders are asking now is if this is the time to ring the register and take profits.
Some profit-taking may be warranted, but based on earnings estimates, you want to maintain exposure because the least path of resistance is upward. Freescale is now profitable on a non-GAAP basis, although it posted a net loss for its most recent quarter, meaning the stock isn't really undervalued.
Over the last month, the shares have moved from $15.30 to almost $23. I think Freescale will test the $30 level in the next 12 months. Here's why:
Earlier this month, Freescale announced a secondary offering of 35 million shares at $18.50 and underwriters have the option to purchase 5 million more. The secondary offering represents about a 15% dilution for current shareholders.
More often than not, dilution is a bearish event. In Freescale's case, though, it's different; the company is using the proceeds to reduce debt. The company will pay all of the 10.125% senior subordinated notes due in 2016 and some of the 8.05% senior unsecured notes due 2020.
The savings gained from the reduction in interest expenses should more than offset the impact of dilution. The lower debt load will go a long way toward cleaning up the balance sheet. The ability to sell shares at $18.50 also demonstrates the value of the stock and why I think investors shouldn't be quick to take all the money and run.