Boston Beer (NYSE:SAM), Kite Pharma (NASDAQ:KITE), and Skechers (NYSE:SKX) are top stocks that our Motley Fool contributors think an acquirer might find intriguing enough to buy. There are different reasons investors in these company's might benefit from an acquisition, so let's take a closer look at these stocks.
Drink in the opportunity
Rich Duprey (Boston Beer): You're not going to find founder and Chairman Jim Koch tacking up a for-sale sign over Boston Beer's corporate offices, though maybe he should. If there's a business that needs to be bought out, it's this leading craft brewer.
Boston Beer has become a victim of its own success. It's led the craft-brewing charge over several decades, and there are now more than 5,000 breweries in operation, most of them producing craft beer. The proliferation of options for beer drinkers has ended up diluting Boston Beer's Samuel Adams brand.
The lager's sales are in a downward spiral, and nothing the brewer has tried is helping. It's no longer small enough to be really considered a craft beer -- the industry's Brewers Association has revised the definition to accommodate Boston Beer's growth -- but it's too small yet to compete effectively against its large, mass-brewed rivals. Yet it is such a familiar beer in stores and on tap at restaurants and bars that it has the image of a bigger brewer, which doesn't sit well with many craft-beer drinkers today who are looking for new and local flavors.
Anheuser-Busch InBev has made a big splash in buying up craft breweries, albeit much smaller ones than Boston Beer, as has Constellation Brands, which bought Ballast Point Brewing for $1 billion, and Heineken, which bought up half of Lagunitas. With Boston Beer's declining fortunes, an investment or purchase by a megabrewer might help its stumbling performance.
Of course, there are a couple of options open to Boston other than getting bought out, such as going private or even buying up small craft brewers itself to reignite growth in its portfolio, which, like its flagship brand, is also suffering from falling sales. For example, its big hard-cider brand, Angry Orchard, is also in a funk, while those few niches that are still selling well -- hard soda and seltzer -- feel more like fads than trends.
But having found itself in an accelerating downward spiral, Boston Beer may have signaled to a bigger brewer that it's ripe for the taking.
Keith Speights (Kite Pharma): It's been a great year for Kite Pharma so far. The clinical-stage biotech announced great results on Feb. 28 for its lead candidate, axicabtagene ciloleucel. (I suspect the name came from throwing Scrabble tiles on a Kite scientist's desk.)
In a phase 2/3 clinical study, the chimeric antigen receptor T-cell (CAR-T) drug produced astonishing results. Patients with chemorefractory aggressive B-cell non-Hodgkin lymphoma (NHL) who took a single infusion of axicabtagene ciloleucel (let's call it AC for short) experienced an 82% objective response rate. After six months, a full 36% of patients had no signs of cancer.
This was beyond merely good news for Kite. These results were so positive that the biotech is quickly moving forward with pursuing regulatory approval. It also could bode well for AC in treating other types of cancer.
Even with the recent run-up in Kite stock, the biotech still has a relatively low market cap. That makes it readily affordable for a host of larger companies. In my view, Kite is one of the best acquisition targets around right now. I'll be shocked if Kite isn't snatched up by a larger company by the end of the year -- if not much sooner.
Kite is flying high. I expect the stock to go even higher, with the possibility of a bidding war between multiple big biopharmaceutical suitors.
M&A is in fashion
Todd Campbell (Skechers): Robert Greenberg did it. He built not one, but two multibillion-dollar footwear companies. After building L.A. Gear into an '80s fashion icon, he and his son have grown Skechers into a $3.5 billion global footwear leader.
Over their 25 years at Skechers, Greenberg, who is in his mid-70s, and his son, Michael, have a lot to be proud of. In 2015, Skechers was ranked the second largest athletic footwear maker, according to NPD.
However, retail-store closures and bankruptcies make growth tougher to come by nowadays, and tough talk on trade out of D.C. could pose headaches for companies that manufacture their products overseas. If the Greenbergs were willing to entertain an offer from a bigger peer, no one could blame them.
As for an acquirer, a good argument can be made that now's a good time to knock on Skechers' door. The company's profitable, with $244 million in net earnings last year, and it's got a solid balance sheet with over $700 million in net cash, and only $75 million in long-term debt. An acquirer would get a successful distribution model that includes international wholesale, retail, and domestic wholesale, and Skechers' revenue and profit could be heading higher, not lower. Revenue was up 13% last year, and it could approach $4 billion in 2017.
A bigger peer such as VF Corp. could conceivably carve out additional profit by eliminating overlapping costs, too. (Skechers spent $277 million on general and administrative expenses last year.)
Furthermore, Skechers could offer attractive value now, given that its shares are trading at only 13 times forward EPS estimates and 1.1 times sales. For comparison, Nike's forward P/E ratio is 21, and it's trading at 2.8 times sales. VF Corp. has a 16 forward P/E, and it's valued at 1.8 times sales, while Adidas AG's forward P/E is 20 and its price-to-sales ratio is 1.7. Clearly, Skechers stock isn't pricey when compared with those of its peers.
Granted, these two industry veterans might not be interested in selling, but even if they aren't, Skechers' potential to grow profit, and its valuation, could make it worth adding to portfolios anyway.
Keith Speights has no position in any stocks mentioned. Rich Duprey has no position in any stocks mentioned. Todd Campbell has no position in any stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool owns shares of and recommends Anheuser-Busch InBev NV, Boston Beer, Nike, and Skechers. The Motley Fool has a disclosure policy.