Canadian Aviation Electronics Firm - Essay Example

? Cae Inc. Recommendation to Acquire s of Cae Inc. Recommendation to Acquire Introduction CAE Inc. is a former Canadian Aviation Electronics firm which has its operations in about 20 countries. The company is one of the major providers of simulation technologies, incorporated training facilities to airlines firms, modeling technologies and security of customers globally. The company founded in 1947 has yearly revenue of about $ 1.6 billion. In respect to the current position of the firm, various recommendations can be drawn to the firm which will enable the firm to acquire other companies of choice for better future prospects. These recommendations are based on the previous analysis of the firm’s current performance and Strengths, Weakness Opportunities and Threats (SWOT) analysis. An accord recommendation is established by an optimal comparison of numerical figures, estimating average values to the closest integer. In most cases, a non-US based research is more suitable for determining the future of the company since the company operates internationally in 20 countries (CAE Global Academy Official site, 2012). Recommendations to Acquire With reference to the firm’s two year price target range, it is prudent to conclude that the company’s agreed price to acquire is $ 13.6 for the shares of the firm (Zacks Investment Research, 2012). The price targets are determined by approximating the future earnings per security and then making use of the multiple of price to earnings commonly known as the price earnings ratio. As shown in the diagram below it would be appropriate for the company to acquire another firm when the share price is at its highest level since the target firm will be forced to lower its share price in preference for a better performing firm such as CAE Inc. at the lowest share price which is less than $ 9.50 the company will not be in a position to acquire the target firm given the many different rivals in the market. Source: Attachments From the SWOT analysis in the preliminary report earlier on handed, it is noted that the company has a variety of opportunities available which includes the underdeveloped health care and mining industries (Annual Report of the CAE. 2012). This analysis is important to the firm as it would be appropriate for it to make bid for the firms in the respective industries at 10Am or 1 Pm when the day’s share prices are selling at a maximum share offer. As shown in the diagram below the quoted price is highest at $ 10.08 at the indicated times. Thus the assumption from the diagram below is that the bids to be considered by the firm must be launched at either 10am or 1pm for the respective firms. Source: Attachments The company must not ignore the potential threats available which include the reduction in the defense services and military markets globally as well as the escalating fuel and the energy prices. These must be taken into consideration when making bids for the target firm. The price consented to must incorporate possible impact of the rise in the fuel prices. This is to avoid loss making in the first years of operation after the takeover or acquisition process. The process of acquisition entails various costs which must not be ignored by the financial analysts of the firm. In this point of view, it is necessary for the company to bear in mind the momentum of the analysts’ reviews. Notably, there seem to be a positive or constructive analysis or prediction of the firm’s future growth. The momentum stands at 7 of 9 approximations predicting an upward growth of the firm by an EPS mean change of 1.33 by the year 2013 (CAE Global Academy Official site, 2012). The valuation of the firm is considerably high which must be in line with the potential target firms. From the preliminary report, it has been noted with a lot of concern that the Healthcare market which is one of the main areas of operations by the firm has a diversity of shortcomings and opportunities. Since the company offers a wide range of products in this market such as patient simulators and surgical simulators, the firm must utilize its presence in various countries to create alliances and acquire firms with strong objectives of growth and in high need for these highly demanded products. There are increasing costs of healthcare with the growing demand for the surgery services which calls for objective takeovers or acquisitions. For example, acquisition of well performing cancer centers in various countries with intentions of creating the demand for its products is more relevant to the firm as it will improve its growth potential. This is an important aspect of the firm’s future prospect in the acquisition process. According to the consensus earnings forecast, the authentic reported earnings per security for the year 2012 in the first quarter for the company was 0.69. Compared to the projected first quarter earnings per share of the year 2013 the average earning per share is about 0.76. The firm must note that the annual and quarterly consensus data is very useful in determining the appropriate price for the shares of the company (Financial Report of the CAE., 2012). This is because it provides a clear overview of the company’s performance in the long-run. These figures are very significant in the process of decision making for the prospective or target firms. Of much importance to the company, the financial statements and ratio analysis especially the EPS and the common ratio analysis must be carefully used. This is in consideration to the fact that sometimes the ratios when used alone might provide misleading predictions for future performance of the firm. Conclusion Various analysts provide a constructive projection of the company’s future growth and performance of its share price which is optimistic for the company’s strategies. The momentum change as noted in the discussion is 7 of the 9 estimates which gives the company an upper hand in determining the buying price for the target firm. However, the company must put into consideration the costs related in the process of acquisition or takeover to enable it determine the precise share price for the target firm. This is to prevent a possible downturn or slump in performance. References Annual Report of the CAE. (2012). Retrieved August 30, 2012 from: http://www.cae.com/en/investors/Q1.FY2013.asp CAE Global Academy Official site (2012) Retrieved August 30, 2012 from: http://www.caeglobalacademy.com/ Financial Report of the CAE. (2012). retrieved August 30, 2012 from: http://www.cae.com/en/investors/_pdf/2012/CAE_AR2012_Financial.pdf Zacks Investment research, (2012). Retrieved Ausgust 30, 2012 from http://www.nasdaq.com/symbol/cae/analyst-research Read More