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Last week, Barron’s published an article featuring 27 potential LBO candidates. Easier credit, low rates, and growing cash piles are increasing private equity activity and make these 27 companies attractive targets. Using historical financial statements, I evaluated each of the firms on the list to see if any deserve further consideration in a value investor’s portfolio.

Advance Auto Parts (AAP): The automotive parts retailer has consistently generated 20%+ returns on equity over the last ten years due to good management and inventory control. The recession led to a rise in the average age of cars on the road and AAP set a record high in revenue last year because of it. At some point people will replace their old cars, so an investor will need to estimate normalized sales for AAP. Based on long term averages of free cash flow margin, I think the stock is fairly valued today. But if free cash flow can continue to grow, it would be attractive to a LBO buyer.

Aeropostale (ARO): The retailer is well positioned in the sweet spot of teen apparel, pricing below both Abercrombie & Fitch (NYSE:ANF) and American Eagle (NYSE:AEO). With fewer stores than its competitors, ARO has room to grow. Historically, it hs produced high margins and Free Cash Flow. I peg its fair value in the low $30s, providing a little upside at the current price. One note of caution, cotton prices have risen significantly in recent months which could put a serious crimp on margins. For a more thorough analysis of ARO, read Kerrisdale Capital’s report here.

Amdocs (DOX): Amdocs provides billing and customer management services, primarily to telecom providers. The company has a history of consistent profitability. Over the last 10 years it has turned 15 cents of every dollar of revenue into free cash. Revenue growth has slowed as the business is maturing but add-on acquisitions could provide some growth. The biggest concern with DOX is that 29% of its revenue comes from AT&T (NYSE:T) and with the pending merger of T-Mobile, this will increase even more. This concentration risk is rare in large cap companies and something to be concerned about. Nevertheless, I think a conservative value for the company is in the $35-$40 range, slightly above its recent price of $30. I plan on researching DOX further.

American Eagle Outfitters (AEO): Another teen retailer on the list with similar risks and characteristics as ARO, but with a little less opportunity for new store growth. Many other investors are high on AEO, and for good reason: The company is well managed and at its current price around $15.60 and seems like an excellent acquisition target by another retailer or private equity. A likely takeover price would be in the low to mid $20s.

Arris (ARRS): Georgia-based Arris sells broadband communications products to cable companies and should see benefits from increased internet traffic and video on demand services. The company hasn’t been very consistent in its returns and suffers from a low ROE, but from an acquisition perspective, there appears to be room for improvement by new management. For an individual investor though, the shares seem to be fairly valued around $12.

Arrow Electronics (NYSE:ARW): The electronic component supplier operates in a highly competitive, low margin business. While it has been able to generate free cash flow in the past, the company doesn’t look like it offers a lot of value near its 52 week high of $44.

Avnet (AVT): Another electronic component distributor trading near its 52 week high, AVT has seen its sales (and stock price) rebound strongly coming out of the recession, but has been plagued by inconsistent margins, ROE, and Free Cash Flow generation. Determining a solid value estimate is difficult because of this inconsistency, but AVT could be a big winner if it can sustain its current revenue level. However, using normalized sales and margins, AVT is slightly overvalued at its current price of $35.60.

CA Inc (CA): The company formerly known as Computer Associates is focused on the hot tech areas of cloud computing and virtualization. The uncertainties in these areas and the direct competition by heavyweights like HP (NYSE:HPQ), IBM (NYSE:IBM), and BMC Software (NASDAQ:BMC) has put pressure on the stock. With 25% of the company owned by insiders and great consistency in margins and ROE over the last 10 years, the stock looks like a bargain if it would pull back to below $20. It is deserving of deeper research.

Children’s Place (PLCE): Another retailer on the list, PLCE specializes in children’s clothing. With about 1000 stores, there is room for revenue growth and the company has been pretty smart on expansion over the years, generating good margins for retail and a ROE in the mid-teens. At its current price above $50 though, it has run a little above its intrinsic value.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Seeking Value in Barron's Leveraged Buyout Candidates List