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Analysts speculate about potential takeover/leveraged buyout targets because when a firm announces that they are being taken over or acquired, the target’s stock often jumps in price to reflect the takeover premium paid by the acquirer.

We compiled a universe of rumored potential takeover/LBO targets from various sources including Wall Street Daily and iStockAnalyst. We screened this list for stocks that appear undervalued, with high ratios of levered free cash flow/enterprise value.

Levered free cash flow is the free cash flow after deducting interest payments on outstanding debt. Enterprise value is the sum of the firm’s value from all ownership sources: Market cap, outstanding debt, and preferred shares. From this value we subtract cash holdings because, in the event of a takeover, that cash would be used towards the takeover price.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the top six 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.

click on image to enlarge

Do you think these companies are likely takeover targets? Use this list as a starting-off point for your own analysis. To access the complete list of takeover targets, click here.

List sorted by levered free cash flow/enterprise value:

  1. Kulicke & Soffa Industries Inc. (KLIC): Semiconductor equipment and materials industry. Market cap of $624.49 million. Takeover/LBO rumor sourced from Bloomberg Businessweek. Levered free cash flow/enterprise value at 24.52% (levered free cash flow at $96.21 million and enterprise value at $392.43 million). This is a risky stock that is significantly more volatile than the overall market (beta = 2.6). The stock has performed poorly over the last month, losing 12.79%.

  2. AMERIGROUP Corporation (AGP): Health care plans industry. Market cap of $2.30 billion. Takeover/LBO rumor sourced from iStockAnalyst. Levered free cash flow/enterprise value at 19.49% (levered free cash flow at $329.32 million and enterprise value at $1.69 billion). Might be undervalued at current levels, with a PEG ratio at 0.68, and P/FCF ratio at 6.2. The stock has performed poorly over the last month, losing 35.2%.
  3. Nokia Corporation (NOK): Communication equipment industry. Market cap of $23.14 billion. Takeover/LBO rumor sourced from Wall Street Daily. Levered free cash flow/enterprise value at 17.90% (levered free cash flow at $2.93 billion and enterprise value at $16.37 billion). The stock has lost 26.1% over the last year.
  4. Apollo Group Inc. (APOL): Education and training services industry. Market cap of $6.37 billion. Takeover/LBO rumor sourced from Wall St. Cheat. Levered free cash flow/enterprise value at 16.21% (levered free cash flow at $833.23 million and enterprise value at $5.14 billion). The stock has performed poorly over the last month, losing 14.09%.
  5. Gannett Co., Inc. (GCI): Publishing industry. Market cap of $2.55 billion. Takeover/LBO rumor sourced from Wall St. Cheat. Levered free cash flow/enterprise value at 15.51% (levered free cash flow at $682.42 million and enterprise value at $4.40 billion). This is a risky stock that is significantly more volatile than the overall market (beta = 2.41). The stock is a short squeeze candidate, with a short float at 10.25% (equivalent to 5.66 days of average volume). The stock has performed poorly over the last month, losing 22.34%.
  6. CA Technologies (CA): Application software industry. Market cap of $9.97 billion. Takeover/LBO rumor sourced from Seeking Alpha. Levered free cash flow/enterprise value at 15.44% (levered free cash flow at $1.30 billion and enterprise value at $8.42 billion). The stock has performed poorly over the last month, losing 12.88%.
  7. Dell Inc. (DELL): Personal computers industry. Market cap of $27.69 billion. Takeover/LBO rumor sourced from Seeking Alpha. Levered free cash flow/enterprise value at 15.04% (levered free cash flow at $2.99 billion and enterprise value at $19.88 billion). Might be undervalued at current levels, with a PEG ratio at 0.93, and P/FCF ratio at 5.91. The stock has performed poorly over the last month, losing 14.25%.
  8. American Eagle Outfitters, Inc. (AEO): Apparel stores industry. Market cap of $2.07 billion. Takeover/LBO rumor sourced from Seeking Alpha. Levered free cash flow/enterprise value at 14.89% (levered free cash flow at $217.46 million and enterprise value at $1.46 billion). The stock is currently stuck in a downtrend, trading 14.34% below its SMA20, 19.58% below its SMA50, and 28.48% below its SMA200. It's been a rough couple of days for the stock, losing 9.86% over the last week.
  9. Best Buy Co. Inc. (BBY): Electronics stores industry. Market cap of $9.37 billion. Takeover/LBO rumor sourced from CNN Money. Levered free cash flow/enterprise value at 14.27% (levered free cash flow at $1.33 billion and enterprise value at $9.32 billion). Might be undervalued at current levels, with a PEG ratio at 0.83, and P/FCF ratio at 7.08. The stock has performed poorly over the last month, losing 15.83%.
  10. RadioShack Corp. (RSH): Electronics stores industry. Market cap of $1.25 billion. Takeover/LBO rumor sourced from CNN Money. Levered free cash flow/enterprise value at 13.25% (levered free cash flow at $180.16 million and enterprise value at $1.36 billion). The stock has performed poorly over the last month, losing 20.46%.
  11. Gap Inc. (GPS): Apparel stores industry. Market cap of $9.02 billion. Takeover/LBO rumor sourced from Wall St. Cheat. Levered free cash flow/enterprise value at 13.19% (levered free cash flow at $1.10 billion and enterprise value at $8.34 billion). Might be undervalued at current levels, with a PEG ratio at 0.94, and P/FCF ratio at 11.02. The stock has performed poorly over the last month, losing 16.34%.
  12. DG FastChannel, Inc. (DGIT): Business services industry. Market cap of $547.15 million. Takeover/LBO rumor sourced from iStockAnalyst. Levered free cash flow/enterprise value at 12.82% (levered free cash flow at $62.59 million and enterprise value at $488.04 million). The stock is a short squeeze candidate, with a short float at 14.15% (equivalent to 7.89 days of average volume). The stock has performed poorly over the last month, losing 33.06%.
  13. Symantec Corporation (SYMC): Security software and services industry. Market cap of $12.28 billion. Takeover/LBO rumor sourced from Seeking Alpha. Levered free cash flow/enterprise value at 12.10% (levered free cash flow at $1.45 billion and enterprise value at $11.98 billion). The stock is currently stuck in a downtrend, trading 5.79% below its SMA20, 12.26% below its SMA50, and 11.29% below its SMA200. The stock has performed poorly over the last month, losing 14.11%.
  14. Hewlett-Packard Company (HPQ): Diversified computer systems industry. Market cap of $52.29 billion. Takeover/LBO rumor sourced from Nasdaq. Levered free cash flow/enterprise value at 11.98% (levered free cash flow at $7.49 billion and enterprise value at $62.53 billion). Might be undervalued at current levels, with a PEG ratio at 0.72, and P/FCF ratio at 6.28. It's been a rough couple of days for the stock, losing 19.69% over the last week.
  15. EarthLink Inc. (ELNK): Internet service providers industry. Market cap of $768.47 million. Takeover/LBO rumor sourced from The Motley Fool. Levered free cash flow/enterprise value at 11.62% (levered free cash flow at $138.32 million and enterprise value at $1.19 billion). The stock is currently stuck in a downtrend, trading 5.84% below its SMA20, 7.12% below its SMA50, and 12.67% below its SMA200. The stock has lost 12.73% over the last year.
  16. Research In Motion Limited (RIMM): Diversified communication services industry. Market cap of $14.97 billion. Takeover/LBO rumor sourced from Wall Street Daily. Levered free cash flow/enterprise value at 11.20% (levered free cash flow at $1.40 billion and enterprise value at $12.50 billion). The stock has recently rebounded, and is currently trading 13.27% above its SMA20 and 5.16% above its SMA50. However, the stock still trades -42.2% below its SMA200. The stock has had a couple of great days, gaining 6.64% over the last week.
  17. Entegris, Inc. (ENTG): Semiconductor equipment and materials industry. Market cap of $958.50 million. Takeover/LBO rumor sourced from iStockAnalyst. Levered free cash flow/enterprise value at 10.90% (levered free cash flow at $83.64 million and enterprise value at $767.02 million). Might be undervalued at current levels, with a PEG ratio at 0.81, and P/FCF ratio at 7.7. The stock has performed poorly over the last month, losing 21.72%.
  18. The McGraw-Hill Companies, Inc. (MHP): Publishing industry. Market cap of $12.44 billion. Takeover/LBO rumor sourced from Seeking Alpha. Levered free cash flow/enterprise value at 10.31% (levered free cash flow at $1.27 billion and enterprise value at $12.32 billion). The stock has gained 52.01% over the last year.

*Levered free cash flow and enterprise value sourced from Yahoo Finance, all other data sourced from Finviz.

Source: 18 Takeover/LBO Targets Undervalued By Cash Flows