Where CATP Will Go From Here
After yesterday's massacre, where CATP will go from here, i.e. in three months what would be CATP's possible stock price? In my view, CATP should be significantly higher than what we've seen yesterday. The following are the potential positive moves that could happen to drive CATP significantly higher from here.
1) Significantly Increased Possibility of Acquisition
Recall that about couple months ago, someone (analysts) raised questions to CTP's management about potential acquisition from larger players, CIT's management gave a resounding "No!", citing the cheap stock price at the time (around $25) did not make any sense to sell the company. Now things have suddenly changed. First of all, with CATP's stock price at $11, an offer at $20 sounds very attractive to both new share holders and employees. But from suitors point of view, if they had been interested in CATP when it was at mid-$20s, now they should feel much more excited, because if they were prepared to toss out $2b to buy the company then, it will now cost them only half of that original amount. Consider the CIT's business is still growing (at a bit slower rate), especially with projected $120mil I-net/E-commerce related business, the suitor(s) can literally pay just for the I-net business alone for $1b (about 9x of I-net revenue) and get the rest $500mil business for free! On the other hand, the Street has lost all the confidence to CIT's management, and punished the stock to low $10s. This will generate significant doubt to the current management's ability to carry the company forward. Both share holders and employees will now favor an overhaul of the management. This will intern significantly affect the management's ability to persuade share holders to stay independent. The conclusion, we shall see a real possibility of CIT being acquired within perhaps 1 ~ 2 month. I think the potential suitors will take advantages of the current chaos within CIT and move quickly to snap the deal. If any one wants to take over CIT, now is the best time to do it!
2) Possible Share Buyback and/or Other Internal Good News
If CIT's management is still confident about itself, and wants to repair the damage it has done to both employees and investment society, this is the weekend the management is considering all the choices they have in order to boost its stock price. Because it is now criticle, even vital to the company's future success, to boost the share price in order to keep CIT's experienced and telented workforce, the company's biggest asset of all. In my view, the biggest weapon they can use, yet the most effective way to lift the stock price, is to use part of its massive cash reserves to buy back some of its stocks. With the float of only 19mil stocks, an announcement of buying back 3mil share program, which costs only about 1/4 of the company's cash/equivalent resources, could influence the market in a big way. The announcement would also demonstrate the management's confidence and determination, thus help The Street to regain some of its completely lost confidence to the company. Since the company has already re-priced its option to $15 last time when the stock price dropped, and it has almost no choice to re-price it again, it is the management's best interest to do something to lift the stock price above $15 in order to keep the high talented employee it has. The conclusion, CIT will announce a share buyback program in the very near future, perhaps as early as in the next couple weeks! On top of this buyback potential, we could also expect some announcements of major contract wins to help boost the price further upward.
3) Analyst Upgrade
After almost 43% drop in CATP's stock price, the stock is now trading at potential Y2K earning of just 50c. This is way oversold. In fact, even after the whole slew of downgrades yesterday, all the analysts are still expecting at least 80c of Y2K earning, and have given CATP's price target of around $20 ~ $28, about 75% ~ 150% higher than what it was ended yesterday. Normally, this upward potential would generate a whole slew of upgrades from analysts, but since most of them have just downgraded it, it wouldn't make sense for them to upgrade it anytime soon. But this doesn't mean that those analysts who didn't downgrade CATP yesterday will not upgrade it based on its valuation. In fact, I think at least couple of them WILL upgrade CATP with next week or two. After all, CIT's business is still growing. With $600mil revenue, $0.70 earning this year, 25% growth rate, stock price trading at $11 warrants someone to pick it up at truck loads! The conclusion, the stock is WAY oversold, and we shall see analysts' upgrades very soon.
All in all, I think CATP is worth about $15 even at this uncertain time. If there is a suitor out there, then it will worth at least $20. In fact, if one suitor comes out, it may cause a bidding war from others for the company, which could easily raise its price to up-$20 level.
The final conclusion, if you haven't bot any CATP shares, this is the time to buy. If you have bot it, hold onto it. As analyst expected, CATP should trade back to $18 ~ $20 level by year end.
Good luck everyone!
MB |
