Stock:
Symbol Lookup
Register | Login
...
History
...
...

Pre Market | Dow Jones | Gold | Newsletters | Learn


Skullcandy Shares Gain on Takeover Talks (SKUL)

Wednesday, January 9, 2013 3:42 PM

By Jason Bond of JasonBondPicks.com - Shares of headphone maker Skullcandy Inc. (NASDAQ:SKUL) have edged higher in trading Wednesday amid talks that the company maybe a takeover target.

Sharp Decline in Shares Makes Skullcandy an Attractive Takeover Target

Skullcandy shares are gaining after Bloomberg said in a report that the sharp decline in the stock in the past 18 months has made the company an attractive takeover target. SKUL shares have fallen sharply since the company completed its IPO in July 2011. The stock has fallen nearly 64% since its IPO amid concerns over increasing competition and the company’s strategy to focus on lower-margin designs.

According to Bloomberg, Skullcandy has performed worse than all but seven of 185 IPOs completed in the U.S. since July 2011.

Last week, the stock fell to a low of $6.70 after a rating downgrade from Jefferies. The brokerage firm downgraded SKUL from a Buy to an Underperform rating. In a research note to clients, Jefferies analyst Randal Konik said that he has become increasingly concerned about promotional pressures and rising competition in the headphone market and that the in-ear segment, which comprises over 60% of Skullcandy’s total revenue is under substantial pressure from several competitors.

However, Bloomberg believes that the company’s extremely low valuation makes it a takeover target. According to data compiled by Bloomberg, SKUL’s enterprise value of 3.9 times earnings before interest, taxes, depreciation and amortization (EBITDA) is below 96% of the stocks in the Russell 2000 Index.

Speaking to Bloomberg, David King, analyst at Roth Capital Partners LLC, said that he doesn’t get the sense that management is wanting or would look to sell at these levels, but you cannot ignore that as being a possible outcome when the stock is trading where it is and the value being as cheap as it is. King believes that despite the pressure on SKUL’s business, shares have fallen too far and that could spur a deal.

What Caused the Sell-Off

Back in April 2012, Skullcandy shares were trading above $17. In fact, as recently as August, the stock had been trading above $16. So what has caused the sell-off in Skullcandy shares? A number of reasons, including increasing competition, slower growth prospects and the company’s shift toward lower-margin products.

Back in September 2012, SKUL shares tumbled after technology giant Apple Inc. (NASDAQ: AAPL) announced new earphones. The sell-off was exacerbated by a rating downgrade from Morgan Stanley analyst Jay Sole. Sole noted in his report that Beats Electronics LLC’s brand, Beats by Dr. Dre, was taking more market share than expected. Sole also said in his report that key SKUL product ASPs are falling unexpectedly and he expects greater impact from rivals.

SKUL shares extended their losses in November after the company lowered its 2012 earnings outlook due to a shift toward lower-margin products, escalating U.S. promotional environment and cautiousness regarding the retail environment in Europe. The company lowered its profit outlook for 2012 to $1-$1.04 per share from $1.10-$1.20 per share.

Meanwhile, there are also concerns over the company’s growth prospects.

Despite all these problems, some analysts and investors think that SKUL shares have fallen way too much.

So Who Might be Interested in Skullcandy?

James Harvey, a money manager at Royce & Associates LLC, which holds SKUL shares, told Bloomberg that the other headphone makers may be interested in acquiring Skullcandy. Harvey said that SKUL’s brand may appeal to buyers such as Bose Corp. or Sony Corp.

Harvey noted that Bose, which is engaged in the production of audio equipment, may find SKUL’s brand recognition and low valuation attractive. In a phone interview to Bloomberg, Harvey further said that SKUL generates cash flow and cash flow has been increasing. He added that Sony could also see SKUL as a fit.

Harvey’s thoughts are echoed by Roth Capital analyst King, who believes that an electronic manufacturer looking to enter the headphones market might be interested in Skullcandy.

However, these are just speculation at the moment. Neither Skullcandy, nor any of the companies mentioned in the Bloomberg report has given any indication regarding a takeover.  Still, SKUL’s valuation may spark some interest. And this makes SKUL an interesting play in the near-term.

By Jason Bond of JasonBondPicks.com

PRINT

FREE Options Trading Lessons
I'll show you how to unlock HUGE Gains with Options Trading
Let's make 2014 the year you get RICH!
Market Wrap For April 24: Apple's Smashing Earnings Overshadowed By Ukraine ConcernsMarket Wrap For April 24: Apple's Smashing Earnings Overshadowed By Ukraine Concerns
U.S. stocks inched higher as Apple`s strong earnings reported on Wednesday proved to be not enough to ease fears over an escalating tension between Russia and Ukraine. Reports surfaced of escalate...
Mid-Afternoon Market Update: Apple Hangs onto Gains as Fusion-io Drops on EarningsMid-Afternoon Market Update: Apple Hangs onto Gains as Fusion-io Drops on Earnings
Toward the end of trading Thursday, the Dow traded up 0.05 percent to 16,510.00 while the NASDAQ surged 0.59 percent to 4,151.30. The S&P also rose, gaining 0.24 percent to 1,879.17. Leading an...
Creative Global's Carlo Besenius Remains An Apple BearCreative Global's Carlo Besenius Remains An Apple Bear
Carlo Besenius of Creative Global is a notable Apple (NASDAQ: AAPL ) bear who released some bearish comments ahead of Wednesday`s second quarter earnings, and remains an Apple bear post-earnings....
5 Companies That Apple Should Buy5 Companies That Apple Should Buy
Now that Apple (NASDAQ: AAPL ) has shut up its critics, at least for the moment, with much better-than-expected second quarter results, it might be time to reconsider a question observers have be...
Samsung Tablets Have Overtaken KindleSamsung Tablets Have Overtaken Kindle
A new study on web broswer usage reported by Mashable , said Samsung (OTC: SSNLF ) tablets overtook Amazon (NASDAQ: AMZN ) Kindle as of April 2014 in North America. There was no need fo...
Mid-Day Market Update: US Stocks Turn Higher; Apple Shares Jump On Upbeat ResultsMid-Day Market Update: US Stocks Turn Higher; Apple Shares Jump On Upbeat Results
Midway through trading Thursday, the Dow traded up 0.18 percent to 16,531.00 while the NASDAQ surged 0.76 percent to 4,158.30. The S&P also rose, gaining 0.36 percent to 1,882.17. Leading and L...
Apple Earnings Roundup: iPhone Strength, Stock Split, Buybacks And MoreApple Earnings Roundup: iPhone Strength, Stock Split, Buybacks And More
Apple (NASDAQ: AAPL ) reported its much-anticipated second quarter results on Wednesday that blew many investors away. Apple handily beat the consensus by earning $11.62 per share, exceeding estim...
CLSA Upgrades Apple on Back of Q2 ResultsCLSA Upgrades Apple on Back of Q2 Results
On Thursday, CLSA upgraded shares of Apple (NASDAQ: AAPL ) from Outperform to Buy and raised the price target from $610 to $695. Analyst Avi Silver`s upgrade is based on: Earnings momentum po...
Mid-Morning Market Update: Markets Drop; GM Earnings Beat EstimatesMid-Morning Market Update: Markets Drop; GM Earnings Beat Estimates
Following the market opening Thursday, the Dow traded down 0.22 percent to 16,465.69 while the NASDAQ tumbled 0.36 percent to 4,112.12. The S&P also fell, dropping 0.26 percent to 1,870.56. Lea...
UPDATE: Bank of America Reiterates on Apple on Buyback UpsideUPDATE: Bank of America Reiterates on Apple on Buyback Upside
In a report published Thursday, Bank of America analyst Scott D. Craig reiterated a Neutral rating on Apple (NASDAQ: AAPL ), and raised the price target from $590.00 to $615.00. In the report, Ba...

Loading Headlines...
 

Stock Market

Track the stock market today with the latest news and information on all things investing! Watch your stocks perform throughout the day and watch the breaking stock market news.

Feedback | disclaimer | privacy policy

Stock Market News

The Stock Market is ever changing. Keep up on your stock market news.

Stock Market Newsletters

Read up on your favorite stock market newsletters.


Learn the Stock Market

Sharper your stock trading skills with our stock market education section.