Becker Drapkin Management, founded by Matthew Drapkin and Steven R. Becker, has recently disclosed in a 13D filing with the Securities and Exchange Commission that it has unloaded 883,611 shares of EMCORE Corporation (NASDAQ:EMKR). Following the transactions, the hedge fund currently owns 2.31 million shares in the provider of semiconductor-based products, translating into a 9.0% ownership stake. Becker Drapkin has been holding a position in EMCORE since the end of 2013, when the fund indicated in a 13D filing that the shares of the company were undervalued and represented an attractive investment opportunity at the time.
Becker Drapkin Management is a value-oriented activist hedge fund established by Matthew Drapkin and Steven R. Becker in 2004. The investment firm mainly invests in deep value stocks of small-cap companies, with market capitalizations normally below $500 million. Becker Drapkin Management, formerly known as SRB Management LP, primarily employs fundamental analysis when seeking investment opportunities in the U.S. equity markets. The Texas-based hedge fund has diversified its holdings among the following sectors: 59% in the information technology sector, 16% in the utilities and telecommunications sector, and 12% and 7% in the consumer discretionary and industrials sectors, respectively. According to its latest 13F filing, Becker Drapkin Management oversees a public equity portfolio worth $179.69 million as of March 31, 2015. We recently profiled Becker Drapkin’s top picks, which included EMCORE, in addition to Par Petroleum Corporation (NYSEMKT:PARR), and Comverse Inc (NASDAQ:CNSI).
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EMCORE Corporation (NASDAQ:EMKR) is a leading provider of compound semiconductor-based products for the broadband, fiber optics, space, and solar power markets. The company mainly operates in two segments: Fiber Optics and Photovoltaics. The shares of EMCORE have gained over 37% since the beginning of the current year, so it is no surprise that Becker Drapkin Management decided to take some profits off the table. To be more detailed, the activist hedge fund acquired a 1.90 million-share stake during the last months of 2013 at prices in the range of $4.29 to $4.75. Meanwhile, the firm has recently sold the aforementioned 883,611 share-stake in the company at prices in the range of $6.55-$7.40, so Becker Drapkin enjoyed returns of at least 38% on the transaction.
EMCORE has recently posted its financial results for the fiscal third quarter of 2015, which pushed the stock to a one year high of over $7 a share. The company reported consolidated revenue of $21.2 million, marking an increase of 11.2% from the previous quarter. EMCORE also managed to improve its consolidation gross margin, which came to 36.3% from the 33.5% reported a quarter ago. At the same time, the company posted non-GAAP income from continuing operations of $1.3 million, which also represented an increase of $1.3 million from the preceding quarter. Let’s not forget to mention that the management of EMCORE expects to deliver an even higher revenue figure for the fourth quarter, anticipated to be in the range of $22-$24 million.
A little while ago, some analysts at Northland Capital, a boutique investment banking firm, initiated coverage on EMCORE by assigning an “Outperform” rating and a target price of $9 on its stock. Hence, this implies that there is still potential upside of 23% from the current price of $7.28 per share. In the meantime, EMCORE completed a “Dutch auction” tender offer and purchased 6.9 million shares of its common stock at a purchase price of $6.55 per share, which might suggest that the management believes the shares of the company are still undervalued. Following the completion of the tender offer, the company disbursed approximately $45 million of its cash.
To sum up, the sell-off of 883,611 shares completed by Becker Drapkin Management does not suggest that there is no more upside for EMCORE or that the activist has necessarily turned bearish on his investment. Analysts at Northland Capital believe that there is more upside for the stock, so we advise continuing to monitor EMCORE in the upcoming months. Alan Fournier’s Pennant Capital Management is among the largest shareholders in EMCORE Corporation (NASDAQ:EMKR), holding an equity stake of 732,282 shares as of June 30.
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