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International Rectifier, the NYSE-listed semiconductor company, could be an excellent takeover prospect given its operations and trading level, two industry sources said.
The sources said that the California-based company is attractive, in that its products include components for what could be in-demand power-management devices, including integrated circuits.
It has had a jump of 200% in annual earnings growth.
Despite that, the sources say, it trades at a considerably low trailing P/E, given its earnings growth and the industry, which they said makes it an excellent buy.
The sources said its low trading level is in part what one termed as “overreaction,” to accounting irregularities the company revealed in April. On the day of that revelation, its share price slid more than USD 3 to USD 35.75 per share.
It since then has retreated further, closing at USD 34.53 on 30 May.
The sources said that the price decline appears to be an overreaction because they said it does not appear that the accounting problems, involving one of its subsidiaries, will have a very significant impact on earnings. According to regulatory filings, the accounting problem involves one of its foreign subsidiaries and apparent premature revenue recognition dating back to September 2005.
The sources said that the market may have reacted the way it did, because International Rectifier, when it went public, did not specify how much money may have been involved and though the irregularities involve a foreign subsidiary, more than 70% of International Rectfier’s business is from abroad.
”There was certainly room for confusion the way it was explained and not explained,” said the first source.
The sources said that the market’s reaction may have created a good buying opportunity, though they said that International Rectifier’s shares were still trading at a low price relative to earnings growth, even before the accounting irregularities were an issue.
They said that, based on 30 May closing stock prices, International Rectifier appears to be trading at a trailing P/E of approximately 15.4, while competitors such as Fairchild Semiconductor International, which has a market capitalization close to that of International Rectifier’s, trades at a trailing P/E of nearly 36, Vishay Intertechnology trades at a trailing P/E of approximately 22.5, and that the industry average is around 26.
Earlier this month, Fitch placed International Rectifier on Rating Watch Negative, due to the accounting issues.
“This is coming upon a time where someone could come in and get a possibly good buy on a company with solid product and customer base, both with what should be a good future,” said the second source.
“The excellent fundamentals that existed before the irregularities were identified, are still there,” the source added.
A spokesperson for International Rectifier declined comment on any possible potential purchase prospects.
The sources said that interested potential acquirers could include Switzerland-based STMicroelectronics, and Pennsylvania-based and NYSE-listed Vishay Intertechnology, which recently purchased International Rectifier’s power control systems business.
From an operations standpoint, the sources said, Maine-based and NYSE-listed Fairchild Semiconductor International could be an interested acquirer, but its approximately USD 2.31bn market capitalization puts it near that of International Rectifier at approximately USD 2.62bn.
Vishay Intertechnology has a market capitalization of approximately USD 3.34bn and STMicroelectronics nearly USD 13bn.
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