Takeover Targets: Top 10 Takeover/LBO Targets Undervalued by Target Price

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When a company announces that it is acquiring another, the target's stock often jumps in price to reflect the takeover premium being paid for the company. This is why analysts pay special attention to rumored potential takeover/leveraged buyout (LBO) targets.

When companies chose to buy a company, they act with similar intentions as regular investors buying stock. Which is to say they look for companies that they feel are undervalued and can offer a positive return on investment. Buy low, sell high.

Investment ideas
Based on this, we compiled a universe of rumored potential takeover/LBO targets from various sources including CNN Money and Seeking Alpha. We screened this universe of stocks for those with the most significantly undervalued to their target price.

This reflects analyst expectations of where the stock is headed within the next year, and if a stock is trading at a steep discount to this number, it may be currently undervalued.

Because target prices are notoriously inflated, it helps to focus on the most pessimistic (the lowest) target prices, as well as those with sufficient analyst coverage of five or more analyst ratings.

The list
Do you think these companies are attractive takeover candidates? Use this list as a starting point for your own analysis. (Click here to access free, interactive tools to analyze these ideas.)

1. DSW (NYS: DSW) : Operates as a specialty branded footwear retailer in the U.S. Market cap of $1.77B. Takeover/LBO rumor sourced from Seeking Alpha. Of the 9 analysts that have set a target price on the stock, the lowest price target stands at $52.00. This implies a potential upside of 18.32% from current levels around $43.95. The stock has performed poorly over the last month, losing 14.02%.

2. Exelixis (NAS: EXEL) : Engages in the discovery, development, and commercialization of small molecule drugs for the treatment of cancer, metabolic, and cardiovascular disorders. Market cap of $597.87M. Takeover/LBO rumor sourced from Minyanville. Of the 6 analysts that have set a target price on the stock, the lowest price target stands at $5.00. This implies a potential upside of 20.77% from current levels around $4.14. This is a risky stock that is significantly more volatile than the overall market (beta = 2.17). The stock is a short squeeze candidate, with a short float at 10.43% (equivalent to 7.38 days of average volume). The stock has had a couple of great days, gaining 11.62% over the last week. The stock has performed poorly over the last month, losing 40.36%.

3. Finish Line (NAS: FINL) : Operates as a mall-based specialty retailer in the U.S. Market cap of $1.09B. Takeover/LBO rumor sourced from Seeking Alpha. Of the 11 analysts that have set a target price on the stock, the lowest price target stands at $23.00. This implies a potential upside of 16.99% from current levels around $19.66. The stock is a short squeeze candidate, with a short float at 12.43% (equivalent to 6.46 days of average volume). The stock has had a couple of great days, gaining 9.73% over the last week.

4. Hartford Financial Services Group (NYS: HIG) : Provides insurance and financial services in the U.S. and internationally. Market cap of $7.92B. Takeover/LBO rumor sourced from Seeking Alpha. Of the 14 analysts that have set a target price on the stock, the lowest price target stands at $21.00. This implies a potential upside of 28.13% from current levels around $16.39. This is a risky stock that is significantly more volatile than the overall market (beta = 2.97). Might be undervalued at current levels, with a PEG ratio at 0.92, and P/FCF ratio at 3.15. The stock has had a couple of great days, gaining 9.23% over the last week.

5. James River Coal (NAS: JRCC) : Engages in mining, processing, and selling bituminous, steam, and industrial grade coal in eastern Kentucky and in southern Indiana. Market cap of $295.54M. Takeover/LBO rumor sourced from CNBC. Of the 6 analysts that have set a target price on the stock, the lowest price target stands at $9.00. This implies a potential upside of 31.77% from current levels around $6.83. This is a risky stock that is significantly more volatile than the overall market (beta = 2.19). The stock is a short squeeze candidate, with a short float at 30.94% (equivalent to 5.41 days of average volume). The stock has had a couple of great days, gaining 20.32% over the last week. The stock has performed poorly over the last month, losing 19.9%.

6. Office Depot (NYS: ODP) : Office Depot, together with its subsidiaries, supplies office products and services. Market cap of $631.06M. Takeover/LBO rumor sourced from CNN Money. Of the 13 analysts that have set a target price on the stock, the lowest price target stands at $2.50. This implies a potential upside of 22.55% from current levels around $2.04. This is a risky stock that is significantly more volatile than the overall market (beta = 3.14). The stock is a short squeeze candidate, with a short float at 11.2% (equivalent to 5.43 days of average volume). The stock has had a couple of great days, gaining 6.13% over the last week.

7. OfficeMax (NYS: OMX) : Distributes business-to-business and retail office products. Market cap of $400.46M. Takeover/LBO rumor sourced from CNN Money. Of the 14 analysts that have set a target price on the stock, the lowest price target stands at $5.00. This implies a potential upside of 19.33% from current levels around $4.19. This is a risky stock that is significantly more volatile than the overall market (beta = 2.54). The stock is a short squeeze candidate, with a short float at 17.07% (equivalent to 6.39 days of average volume). The stock has lost 74.02% over the last year.

8. Quality Systems (NAS: QSII) : Develop and market health-care information systems. Market cap of $2.08B. Takeover/LBO rumor sourced from Seeking Alpha. Of the 16 analysts that have set a target price on the stock, the lowest price target stands at $41.00. This implies a potential upside of 20.52% from current levels around $34.02. Relatively low correlation to the market (beta = 0.7), which may be appealing to risk averse investors. The stock is a short squeeze candidate, with a short float at 15.56% (equivalent to 8.76 days of average volume). The stock is currently stuck in a downtrend, trading -5.97% below its SMA20, -16.35% below its SMA50, and -16.36% below its SMA200. The stock has gained 9.07% over the last year.

9. Symantec (NAS: SYMC) : Provides security, storage, and systems management solutions to secure and manage information. Market cap of $12.05B. Takeover/LBO rumor sourced from Seeking Alpha. Of the 23 analysts that have set a target price on the stock, the lowest price target stands at $19.00. This implies a potential upside of 21.79% from current levels around $15.60. The stock has lost 4.61% over the last year.

10. Vertex Pharmaceuticals (NAS: VRTX) : Engages in the discovery, development, and commercialization of small molecule drugs for the treatment of serious diseases worldwide. Market cap of $6.05B. Takeover/LBO rumor sourced from Minyanville. Of the 19 analysts that have set a target price on the stock, the lowest price target stands at $32.00. This implies a potential upside of 17.09% from current levels around $27.33.. The stock is currently stuck in a downtrend, trading -5.83% below its SMA20, -25.17% below its SMA50, and -37.36% below its SMA200. The stock has performed poorly over the last month, losing 26.77%.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.


Kapitall's Rebecca Lipman does not own any of the shares mentioned above. To access the complete list of takeover targets, click here. Target price data sourced from Yahoo! Finance.

At the time this article was published The Motley Fool owns shares of Exelixis. Motley Fool newsletter services have recommended buying shares of Exelixis, Quality Systems, and Vertex Pharmaceuticals. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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