NEW YORK (TheStreet) -- Shares of Dot Hill Systems (HILL were gaining 87.3% to $9.70 on heavy trading volume Wednesday morning following the announcement that Seagate (STX will acquire the data management and protection company for about $694 million.
Seagate will pay $9.75 a share in cash to acquire Dot Hill, which represents a 50% premium over the company's three-month stock price average. The transaction reflects an enterprise value of about $645 million for Dot Hill.
Dot Hill's external storage array-based systems and software will be offered as part of Seagate's Cloud Systems and Electronics Solutions business following the transaction.
"Seagate has a strong reputation in enterprise storage and is focused on building out its best-in-class storage system capabilities, making them the right home for the talented Dot Hill team," Dot Hill CEO Dana Kammersgard said in a statement.
About 15.9 million shares of Dot Hill were traded by 9:36 a.m. Wednesday, well above the company's average trading volume of about 627,000 shares a day.
Insight from TheStreet's Research Team:
Dot Hill is a part of David Peltier's Stocks Under $10 Portfolio. Here is what Dave had to say about the stock in a recent alert:
Shares in Dot Hill Systems (HILL were trading 87% higher than yesterday's close before markets opened today -- changing hands at around $9.71 after the company agreed to be acquired by Seagate Technology (STX, for $9.75 a share ($694 million) in cash.
After you receive this Alert, we will ring the register and sell all 1,000 shares that overnight became the second-largest position in the model portfolio. Our average gain on the holding is more than 64%. Given that the deal was mutually agreed upon, for all cash and at such a high premium, we see little value in holding onto the stock in the hope that a potentially higher bid will materialize.
TheStreet Ratings team rates DOT HILL SYSTEMS CORP as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate DOT HILL SYSTEMS CORP (HILL) a BUY. This is driven by multiple 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 compelling growth in net income, robust revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity and solid stock price performance. We feel its strengths outweigh the fact that the company shows low profit margins."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- DOT HILL SYSTEMS CORP has shown improvement in its earnings for its most recently reported quarter when compared with the same quarter a year earlier. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, DOT HILL SYSTEMS CORP increased its bottom line by earning $0.12 versus $0.10 in the prior year. This year, the market expects an improvement in earnings ($0.32 versus $0.12).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Computers & Peripherals industry. The net income increased by 978.2% when compared to the same quarter one year prior, rising from -$0.08 million to $0.69 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 36.8%. Since the same quarter one year prior, revenues rose by 27.6%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- HILL 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, HILL has a quick ratio of 2.03, which demonstrates the ability of the company to cover short-term liquidity needs.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Computers & Peripherals industry and the overall market on the basis of return on equity, DOT HILL SYSTEMS CORP has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- You can view the full analysis from the report here: HILL Ratings Report