Shares of LSI Corporation (LSI) hit a new 52-week high of $11.05 on Jan 6 and eventually closed at the same price. The closing share price represents a strong one-year return of 53.9% and a year-to-date return of 0.5%. Average volume of shares traded over the last 10 days (13,962K) increased from the average volume of shares traded over the last three months (11,403k).
This Zacks Rank #3 (Hold) company has a market cap of $6.06 billion with long-term earnings growth expectations of 17.7%.
The current optimism surrounding the shares comes on the news of its acquisition by Avago Technologies (AVGO) for $6.6 billion in cash. Per the deal, LSI shareholders will receive a cash payment of $11.15 for each LSI share. The transaction is expected to be completed within the first half of 2014, subject to regulatory approvals and fulfillment of customary closing conditions.
It is worth noting that with the announcement of the deal, LSI shares jumped 38.6% to close at $10.96 on Dec 16. This substantial jump has resulted in a year-to-date return of 45.8% on LSI shares.
We believe that LSI was a potent acquisition target as the company has a broad range of products that enables it to serve a diverse clientele in the hard disk drive (:HDD), server and networking end markets. Also, the company’s association with Cisco Systems, Inc. (CSCO) in the networking space is a positive.
Moreover, LSI’s product launches and higher sales of flash-based products are expected to provide adequate support to revenue growth. In addition, LSI’s rapid traction in the growing PCIe flash adapter market segment coupled with continuous share buyback and dividend payout are some of the catalysts driving the stock.
On Oct 23, LSI reported modest third-quarter 2013 results with the top line lagging the Zacks Consensus Estimate but the bottom line matching the same. In addition, the continuing macro uncertainty, competition from its peers, declining PC market and the company’s conservative guidance are near term concerns.
Western Digital Corporation (WDC) is a better-ranked stock in the technology sector with a Zacks Rank #1 (Strong Buy).