Cypress Semi: Takeover Target?

07/29/2016 7:00 am EST


Briton Ryle

Editor, The Wealth Advisory

From a valuation standpoint, this new recommendation—a semiconductor marker—is a textbook undervalued company with massive amounts of potential, asserts Briton Ryle, editor of The Wealth Advisory.

Management at Cypress Semiconductor (CY) has succeeded in growing revenues consistently over the past three years, and last year, through shrewd planning and execution, nearly doubled the top line.

Over the past four quarters, the company has smashed earnings estimates three times and matched them once.

When we move to the valuation, we’re again talking about an industry all-star. Price-to-sales ratios come in a good 35%+ below industry average.

Price-to-book is even more impressive at less than half the mean ratio of its peers. The PEG ratio is sitting just around 1. And the forward P/E ratio is sitting at a very pretty 13.2.

This is a company with a gigantic revenue stream, an attractive 4% dividend, incredible valuations, and a relatively small debt burden. And that, the beauty of the fundamentals, brings me to my next point.

To be honest, however, we really aren’t too concerned with the long-term. Really, we’re looking to make a quick 35% or more when Cypress gets bought out for a premium.

What makes me so confident? Because Cypress has already started being courted. Management recently turned down an offer that worked out to $14 per share because it was too cheap.

That’s right — a 16%+ premium wasn’t enough. CY is holding out for at least $15. And it’s likely to get it.

You see, not only has it already gotten an unsolicited bid at $14 a share, but the company has also retained the expertise of Goldman Sachs to help shop it around to more potential buyers.

It could go for $16 — or higher. So, with that in mind, let’s buy CY common and get set to take a premium for our foresight. Cypress is a strong buy under $12 and has a buyout target of $15.

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By Briton Ryle, Editor of The Wealth Advisory

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