It happens every year, and 2016 won’t be any different. Larger companies looking to add to growth, in addition to that of the organic or internal variety, scan the field for purchases and acquisitions that are easy to bolt on and could add returns in a timely fashion. This year the process may even speed up some as the market sell-off that happened through the first two months may have already put some companies in the sights of acquirers, despite the recent market rally.

In what is a yearly and very all-encompassing report, the analysts at RBC again go through every sector looking for possible takeover candidates. Last year the company’s takeover screens yielded 29 candidates that were eventually acquired over the following 12 months. With technology a favorite sector at many of the top firms we cover this year, we thought the RBC list of potential buyout candidates looked intriguing, and found four well-known companies that really caught our eye.

Celestica

This company does a large amount of business with Cisco, which could have an eye toward it. Celestica Inc. (NYSE: CLS) provides supply chain solutions to customers in the communications, consumer, aerospace and defense, industrial, health care, energy, semiconductor equipment, servers and storage end markets in the Americas, Asia and Europe.

Celestica offers a range of services, including design and development, engineering services, supply chain management, new product introduction, component sourcing, electronics manufacturing, assembly and test, complex mechanical assembly, systems integration, precision machining, order fulfillment, logistics and aftermarket repair and return services.

These products and services are used in various applications, such as servers; networking, wireless and telecommunications equipment; storage systems; optical equipment; aerospace and defense electronics, comprising in-flight entertainment and guidance systems; audiovisual equipment; set-top boxes; printer supplies; and a range of industrial and alternative energy products, including solar panels and inverters.

The stock trades at five times enterprise value (EV) to EBITDA and gross margins of 7%. These are crucial metrics that RBC uses when looking for potential takeover candidates. Celestica also boasts EBIT margins of 3%.

The Thomson/First Call consensus price target for the stock is $10.75. The stock closed most recently at $10.75.
Cree

This top company has shown momentum recently and could be a very viable takeover candidate. Cree Inc. (NASDAQ: CREE) is a market-leading innovator of lighting-class LEDs, LED lighting and semiconductor products for power and radio frequency (RF) applications. JPMorgan sees the company having a distinct advantage in patents, brand, distribution and overall corporate scale.

Cree’s product families include LED fixtures and bulbs, blue and green LED chips, high-brightness LEDs, lighting-class power LEDs, power-switching devices and RF devices. Cree products are helping to drive significant improvements in applications such as general illumination, backlighting, electronic signs and signals, power suppliers and solar inverters.

The company trades at 11.3 time EV to EBITDA and sports a 29% gross margin figure, along with a 1% EBIT margin. The consensus price target is $29. The stock closed Tuesday at $29.64.

Jabil Circuit

This is another company that does significant business with Cisco. Jabil Circuit Inc. (NYSE: JBL) is the ultimate outsourcing stock for technology and more. The company offers electronics and mechanical design, production, product management and aftermarket services to companies in the aerospace, automotive, computing, consumer, defense, industrial, instrumentation, medical, networking, peripherals, solar, storage and telecommunications industries. Analysts estimate the company gets 7% to 9% of its overall revenue from Cisco on sales via routers and switches.

The stock trades at 4.4 times EV to EBITDA and has an 8% gross margin number and a 3% EBIT margin. The consensus price target is $22.11. Shares closed Tuesday at $19.71.

Microsemi

This company could benefit from continued industrial demand and is on the RBC Top Picks list. Microsemi Corp. (NASDAQ: MSCC) offers a comprehensive portfolio of semiconductor and system solutions for communications, defense and security, aerospace and industrial markets. Products include high-performance and radiation-hardened analog mixed-signal integrated circuits (ICs), power management products; timing and synchronization devices and precise time solutions, setting the world’s standard for time; voice processing devices; RF solutions; security technologies and scalable anti-tamper products; Ethernet solutions; Power-over-Ethernet ICs and midspans.

The company was added to the PHLX Semiconductor Sector Index recently and delivered first-quarter fiscal 2016 adjusted earnings that matched Wall Street’s consensus. Revenues came ahead of the consensus estimate, driven by strong growth across all the end markets. The company also reported that for the quarter the book-to-bill ratio was greater than one, which indicates revenue growth. Top Wall Street analysts also see potential upside in the military and aerospace sectors.

Microsemi trades at 13.8 times EV to EBITDA, and it has gross margins of 47% and 12% EBIT margins. The consensus price target is $44. The stock closed on Tuesday at $37.58.

While there is no guarantee that any of these companies get purchased, they all stand out on their own very strong metrics. While only suitable for aggressive growth accounts, they make good sense as buyout candidates or standalone entities.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.