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Takeover targets are made more attractive by the amount of cash they hold – because that cash directly reduces the cost of purchasing the company, and future cash flows can help support an LBO. Therefore a look at cash flows can indicate the likelihood of a company being taken over.

Here we screened a universe of rumored takeover / leveraged buyout targets from various sources including Barron’s and CNN Money. We screened these stocks for those with high levered free cash flow relative to market cap.

Levered free cash flow is the free cash flow after paying interest on outstanding debt.

From this list, we then searched for those that were also potentially undervalued relative to changes in EPS. Under the theoretical assumption that P/E is equal to a constant K, changes in EPS estimates should be matched by proportionate changes in price. When they don’t match up, a mispricing may have occurred.

Although there is no reason to expect that P/E remains constant, this is merely a theoretical assumption for the purpose of giving you a starting point for your own analysis.

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

We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click here.

Do you think these companies may soon get taken over? Use this list as a starting-off point for your own analysis.

List sorted by market cap.

1. Best Buy Co. Inc. (NYSE:BBY): Market cap at $12.38B. TTM levered free cash flow at $1.33B, which represents about 10.74% of the company's market cap. Over the last 30 days, analyst projected EPS has increased 0.87% (from $3.46 to $3.49), while the price has changed 0.50% over the last 30 days (from $31.76 to $31.92). Takeover rumor sourced from CNN Money.

2. Nordstrom Inc. (NYSE:JWN): Market cap at $10.08B. TTM levered free cash flow at $731.88M, which represents about 7.26% of the company's market cap. Over the last 30 days, analyst projected EPS has increased 0.33% (from $3.00 to $3.01), while the price has changed -1.22% over the last 30 days (from $46.83 to $46.26). Takeover rumor sourced from Barron’s.

3. SAIC, Inc. (SAI): Market cap at $5.93B. TTM levered free cash flow at $544.12M, which represents about 9.18% of the company's market cap. Over the last 30 days, analyst projected EPS has increased 1.41% (from $1.42 to $1.44), while the price has changed -4.33% over the last 30 days (from $17.56 to $16.80). Takeover rumor sourced from Barron’s.

4. GameStop Corp. (NYSE:GME): Market cap at $3.73B. TTM levered free cash flow at $411.85M, which represents about 11.04% of the company's market cap. Over the last 30 days, analyst projected EPS has increased 0.34% (from $2.90 to $2.91), while the price has changed -5.83% over the last 30 days (from $27.98 to $26.35). Takeover rumor sourced from The Street.

5. AMERIGROUP Corporation (AGP): Market cap at $3.42B. TTM levered free cash flow at $327.11M, which represents about 9.56% of the company's market cap. Over the last 30 days, analyst projected EPS has increased 0.45% (from $4.45 to $4.47), while the price has changed -2.71% over the last 30 days (from $70.91 to $68.99). Takeover rumor sourced from iStockAnalyst.

6. DG FastChannel, Inc. (NASDAQ:DGIT): Market cap at $865.37M. TTM levered free cash flow at $58.32M, which represents about 6.74% of the company's market cap. Over the last 30 days, analyst projected EPS has increased 0.46% (from $2.19 to $2.20), while the price has changed -10.77% over the last 30 days (from $35.38 to $31.57). Takeover rumor sourced from iStockAnalyst.

*Levered free cash flow, EPS and price data sourced from Yahoo! Finance, all other data sourced from Finviz.

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

Source: 6 High-Cash Takeover Targets Undervalued by EPS Trends