Is Kulicke & Soffa a Buyout Candidate?

 | Sep 09, 2016 | 12:00 PM EDT
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I'm still on the hunt for potential acquisition candidates to invest in, using my "Double-Net" stock screen to find them. Let's take a closer look a one such stock: semiconductor-equipment maker Kulicke & Soffa (KLIC) .

As a reminder, my "Double-Net" screen identifies firms that look ripe for takeovers because they currently trade at 1x to 2x their net current asset value. It's been quite a year for this screen so far, with three double-net stocks agreeing to buyout deals: Ingram Micro (IM) , Rofin-Sinar Technologies (RSTI)  and Skullcandy (SKUL) .

Call that luck, or perhaps just being in the right place at the right time. After all, would-be suitors have had difficulty finding truly cheap companies in today's market. At the same time, the three names above (especially IM and ROFI) share some characteristics that made them all attractive takeover targets.

My attempts to identify other potential takeover candidates have yet to bear fruit, but instant gratification is rare in "Valueland," which usually requires longer time horizons. Rarely do situations unfold as quickly as, say, Skullcandy's June acquisition deal did.

That said, Kulicke & Soffa is another double-net that looks interesting here -- in fact, the company looks a bit better than it did the last time I wrote about it. KLIC last month reported third-quarter earnings of 45 cents per share, beating analysts' EPS estimates by 8 cents. The company's revenues also rose 31.5% to $216.4 million, besting consensus estimates by nearly $16 million.

Kulicke & Soffa's balance sheet has also improved, and that's where the double-net rubber really meets the road. KLIC ended the quarter with $516 million in cash and short-term investments, or $7.33 per share. That's up from $482 million (or $6.85 per share) as of the prior quarter's end. The company also has just $17 million in debt.

Add it all up and KLIC currently trades at 1.46x net current asset value and 1.34x tangible book value per share. Analysts' consensus estimates also call for 80 cents in 2017 earnings per share, which puts KLIC's current forward price-to-earnings ratio at a tad under 16.0. That might not scream "cheap," but remember that cash represents nearly 60% of Kulicke & Soffa's market cap.

The Bottom Line
Being able to identify potential acquisition candidates is always exciting -- but at the end of the day, it doesn't matter whether a stock rises because someone buys the company or investors simply bid up a cheap name. It's the pursuit and realization of value that really matters.

And while the acquisition route certainly gives value investors a special sense of satisfaction, it can also backfire on you when someone pays too little for a company that you've invested in. For example, I'm still miffed that Krispy Kreme agreed to sell itself recently to JAB Holdings for what I see as a subpar $21 a share.

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