Sprint—with or without a Buyer
The spate of merger-and-acquisition activity in recent weeks is boosting Wall Street's optimism, and more deals are in the pipeline. The most recent buzz is about Sprint Nextel (S), the third-largest U.S. telecom. Speculation that Deutsche Telekom (DT), which owns T-Mobile, is eyeing Sprint gave Sprint's shares a boost.
The rumors lifted the stock to 4.15. Then it eased to 3.98 on Sept. 16. (Sprint sank to 1.35 last November.) But even if no deal occurs, the stock is still a buy, says Chandan Sarkar of investment firm Auriga USA. He notes that Sprint is trading below its asset value, which he pegs at 5 to 10 a share. However, if a merger does materialize, he says it would be a "strong long-term positive" because it would reduce the number of competitors in an "overly crowded sector."
A deal would benefit both [Sprint and DT] "as it would allow leverage against the two largest carriers [Verizon (VZ) and AT&T (T)] and reduce price competition," says James Moorman of Standard & Poor's (MHP). He notes that Sprint, which he rates a buy, is trading at an "attractive valuation" and offers a valuable subscriber base. Aside from initiating cost-cutting measures that he says have been bearing fruit, Sprint has introduced several new handsets, such as the Pre, with price plans designed to attract new subscribers.
More Security for Tyco
Tyco International (TYC) is no longer a glamour stock since it spun off its electronics and health-care arms in 2007. Even so, the No. 1 maker of electronic security gear is showing lots of oomph. On Sept. 16 it hit 34.42, up from 18 in March.
As the economy stabilizes, Tyco is likely to reach 45 in a year, says John Inch of Bank of America Merrill Lynch (BAC), which has done banking for Tyco. He says 2009 will be a trough for profits at Tyco. Even so, he has revised his 2009 earnings forecast to $2.32 a share from $2.18, and expects $2.65 in 2010 and $3 in 2011, vs. 2008's $3.06.
Tyco may also consider selling its steel tubing and cable products unit (11% of sales), says Nicholas Heymann of investment firm Sterne, Agee & Leach, who tags Tyco a buy. Providing a push, he says, are a likely share buyback and higher payouts—currently the dividend yield is 2.46%.
Alberto-Culver Looks Alluring
Will Alberto-Culver (ACV), the fourth-largest U.S. maker of personal-care products, including VO5 and Nexxus, do an acquisition or agree to be bought out? Analysts are sure it will be one or the other since Alberto-Culver currently has $500 million in cash, or about $4.67 a share.
That robust balance sheet could be a source of "value creation," allowing Alberto to acquire another company or brand, says Jon Anderson of investment firm William Blair (it owns shares), who rates the stock outperform.
Dara Mohsenian of Morgan Stanley (MS) believes Alberto, whose stock has risen to 27.21 from 20 in April, is an attractive mid-cap player as the beauty-products industry consolidates. As such, it deserves a "consolidation premium," says Mohsenian, who rates the stock outperform. An Alberto spokesman says the company is always on the lookout for strategic acquisitions.