Stock in the US digital chipmaking company OmniVision Technology (OVTI) surged 15% to close at $28.29 following Chinese investment company Hua Capital’s announcement of a buyout offer of $1.7 billion, or $29 per share. Needham Capital raised its price target to $32 from $27 based on similar past acquisitions in OmniVision’s sector.
China’s interest in the company may be related to the increasing use of smartphones in key Asian markets, as well as the upcoming LTE rollout by China Mobile Ltd. (CHL) that is set to boost shipments from 250 million units last year to 500 million units.
Is OmniVision a Good Pick or a Short Stick?
Jim Cramer, host of CNBC’s Mad Money, is skeptical of OmniVision’s inflated value from investors with short positions. He drew connections to Zillow Inc’s (Z) $3.5 billion buyout of Trulia Inc. (TRLA) at a 25% premium, despite short investors’ belief that Zillow would annihilate Trulia in the market. Dollar Tree, Inc’s (DLTR) recent $8.5 billion purchase of rival Family Dollar (FDO) , also at a 25% premium, was another example. Since its buyout, Family Dollar is up 25.85% while buyout instigator Dollar Tree is up 3.16%.
Though steadily increasing for a year-to-date boost of 64.5%, OmniVision stock has been volatile and as of yesterday holds a bullish Relative Volatility Index of 66.74. Its debt-to-equity ratio is 0.04, which is low for its industry. Net income surged 68.9% year-over-year from $8.92 million to $15.07 million. Despite its good marks, it has repeatedly disappointed investors and analysts with its earnings reports, Cramer said.
OmniVision is currently evaluating the deal with JP Morgan Securities as its financial adviser. It is well positioned as a leading chip manufacturer for smartphone and tablet cameras, but Sony Corp. (SNE) is presenting fierce competition. Since Sony began supplying its image sensors to Apple for the iPhone 4S, OmniVision has gradually lost its preferential treatment and was relegated to the FaceTime camera spot for the iPhone 5. Rumors are flying over whether Sony will beat out OmniVision as the supplier for both front- and rear-facing cameras.
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