Morgan Stanley guesses which stocks could be taken over next after Amazon's iRobot buy

Published Mon, Aug 15 202210:36 AM EDT

Since Amazon's acquisition of iRobot, investors have been speculating about which other companies may be bought next. Earlier this month, the e-commerce giant announced it was buying the Roomba-maker for $1.7 billion. The news touched off chatter about further consolidation in the space, including a note from D.A. Davidson that identified three potential targets for Amazon to acquire. Now Morgan Stanley has come up with its list of possible acquisition candidates within the consumer hardware space. They did not specifically identify who they think could be the buyer of such names. To be clear, these are guesses on the part of Morgan Stanley analysts. Good candidates would have three possible characteristics, the firm said in a note Friday. Smaller market cap Valuations that have materially de-rated, potentially due to execution challenges Brand leadership and/or differentiated technology. Analysts then narrowed it down to companies that had a market cap of $10 billion or less, stocks that were down by at least 35% over the last year and had strong brand leadership/technology. Here are four of the names Morgan Stanley came up with. Sonos Shares of Sonos are down roughly 54% over the past 12 months. The maker of high-end speakers also missed on earnings last week and cut its full-year guidance. However, Morgan Stanley believes the company is well positioned to grow faster than its consumer-hardware peers over the long term. "We believe Sonos possesses an industry-leading IP portfolio, large $90B+ TAM, strong brand name, clean balance sheet, and loyal customer base that owns, on average, 3 Sonos products per household," analysts wrote. One possible challenge to an acquisition by a megacap tech company may be the fact that the platform is compatible with all voice assistants and streaming music services, Morgan Stanley said. GoPro GoPro has a strong brand and leading share in the action-camera marketplace, Morgan Stanley said. However, it has been challenged by a historical lack of consistency. GoPro, whose shares are down about 33% over the last 12 months, trades at a discount to its consumer hardware peers. There has been speculation in the past that it could be acquired, possibly by Apple or others, and in 2018 CEO Nick Woodman confirmed the company was open to offers , Morgan Stanley noted. Vivint With shares down roughly 45% over the past year, Vivint Smart Home has an attractive valuation, Morgan Stanley said. "We believe that the 2020 partnership announcement between Google and ADT to create a next-gen [do-it-for-me] smart home platform shows that Vivint's vertically integrated model is where the market is increasingly trending," analysts wrote. In addition, Amazon's acquisition of Ring and Google's acquisition of Nest show that megacap technology companies have a potential interest in getting deeper into these opportunities, Morgan Stanley said. Vivint's recent entrance into the solar and smart insurance markets may also be viewed as early-stage growth opportunities, the firm found. Cricut Cricut is a leader in the U.S. crafting market, but has been facing headwinds in the form of post-pandemic demand. Shares of the company, which specializes in cutting machines for crafting, are down about 74% over the past 12 months. "The less-than-certain trajectory of Cricut's fundamentals means finding an agreed upon takeout price in the event of an acquisition could be a potential challenge," Morgan Stanley said. However, the company has created an interesting niche, has 2.4 million users as subscribers and continues to enhance its software and cloud-driven experience. Its valuation may also be considered attractive in a consolidation scenario, the firm found. —CNBC's Michael Bloom contributed reporting.