Home Capital Group (TSE:HCG) stock is surging today, up 57%, following news that it agreed to be taken over by Smith Financial Corp. at a price of C$44 per share, for a total valuation of C$1.7 billion. This represents a 63% premium over HCG’s last closing price, and the stock is now up about 9% on the year as a result. HCG has had an interesting past few years. In 2017, the company was in trouble, as investors were concerned about the company engaging in mortgage fraud (which ended up being true).
HCG plummeted to the low C$5 range in April 2017 until the Oracle of Omaha, Warren Buffett, bailed out the company, sending its stock much higher. He then sold it in 2018. Fast-forward to today, and it could get bought out for C$44. What a turnaround, to say the least.
It’s not certain that the HCG will go through; it still requires regulatory approval and a green light from two-thirds of HCG’s shareholders. In addition, Home Capital Group can shop around for higher offers until December 30, but there would be fees of C$25 million or C$50 million if the deal is canceled, giving HCG shareholders more incentive to go through with it. Also, shareholders could receive an extra $0.25 per share for every three months that the deal gets delayed if it doesn’t go through prior to May 20.
The move has even sent EQB Inc’s (TSE:EQB) stock 12% higher; here’s why. Smith Financial is the holding company of First National Financial (TSE:FN), co-founded by Stephen Smith, who is a large EQB shareholder. Therefore, EQB is likely rallying due to takeover speculation.
What is the Price Target for HCG Stock?
Price targets haven’t been updated yet, but we imagine they’d come in at around C$44/share due to the news. However, even before the news, Home Capital Group stock’s average price target was C$40.20 based on four Buys and one Hold rating from analysts. From current levels, this represents 5.2% downside potential, but the stock still has some upside potential if it gets bought at C$44 since its current price is just over C$42.
Conclusion: What a Turnaround for Home Capital Group
HCG went from zero to hero in the past five years. The deal seems likely to go through, but if it doesn’t, HCG’s share price could drop substantially. Therefore, investors need to consider that scenario when thinking of buying the stock.
