Spansion (CODE) Stock Spikes Following Merger

NEW YORK (TheStreet) -- Spansion (CODE) shares are climbing, up 22.5% to $28 in early market trading on Tuesday, after the flash memory chip maker agreed to a merger with fellow Silicon Valley chip maker Cypress Semiconductor  (CY) that values Spansion at about $1.6 billion.

Spansion shareholders will receive 2.457 shares of Cypress for every share of Spansion that they hold, giving shareholders of both companies an even split on the amount of shares owned of the new company by each side. The merged company will keep the Cypress Semiconductor name 

Spansion generated $972 million in revenue last year while Cypress generated $723 million in revenue in 2013. The merged company expects to generate revenue north of $2 billion annually, according to a joint statement released by the companies yesterday.

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TheStreet Ratings team rates SPANSION INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate SPANSION INC (CODE) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its solid stock price performance, increase in net income and robust revenue growth. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and 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 70.6% when compared to the same quarter one year prior, rising from -$36.90 million to -$10.85 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 18.6%. Since the same quarter one year prior, revenues rose by 15.6%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • SPANSION INC 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, SPANSION INC swung to a loss, reporting -$1.34 versus $0.40 in the prior year. This year, the market expects an improvement in earnings ($0.98 versus -$1.34).
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Semiconductors & Semiconductor Equipment industry and the overall market, SPANSION INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has decreased to $34.68 million or 30.37% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • You can view the full analysis from the report here: CODE Ratings Report
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