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Analysts speculate about potential takeover/leveraged buyout targets because, when a firm announces it is 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 Minyanville and Seeking Alpha. We screened these stocks for those with high profitability, beating their industry peers on gross, operating, and pretax margins. We then screened for those appearing undervalued to their free cash flow, with price/free cash flow below 15.

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.



Do you think these are attractive acquisition 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 market cap.

1. Kohl's Corp. (KSS): Operates department stores in the United States. Market cap of $12.25B. Takeover/LBO rumor sourced from Wall St. Cheat Sheet. P/FCF at 13.02. TTM gross margin at 38.36% vs. industry gross margin at 35.12%. TTM operating margin at 10.64% vs. industry operating margin at 8.22%. TTM pretax margin at 9.96% vs. industry pretax margin at 7.09%. Might be undervalued at current levels, with a PEG ratio at 0.81 and P/FCF ratio at 13.02. It's been a rough couple of days for the stock, losing 8.08% over the last week.

2. The McGraw-Hill Companies, Inc. (MHP): Provides various information services for financial, educational, and business information markets worldwide. Market cap of $12.08B. Takeover/LBO rumor sourced from Seeking Alpha. P/FCF at 13.91. TTM gross margin at 61.96% vs. industry gross margin at 43.13%. TTM operating margin at 23.24% vs. industry operating margin at 16.64%. TTM pretax margin at 22.0% vs. industry pretax margin at 13.10%. It's been a rough couple of days for the stock, which lost 5.25% over the last week.

3. Gap Inc. (GPS): Operates as a specialty retailing company. Market cap of $8.64B. Takeover/LBO rumor sourced from Wall St. Cheat Sheet. P/FCF at 9.14. TTM gross margin at 42.15% vs. industry gross margin at 38.40%. TTM operating margin at 12.36% vs. industry operating margin at 10.10%. TTM pretax margin at 12.20% vs. industry pretax margin at 9.40%. Might be undervalued at current levels, with a PEG ratio at 0.89, and P/FCF ratio at 9.14. It's been a rough couple of days for the stock, losing 6.27% over the last week.

4. Sealed Air Corporation (SEE): Manufactures and sells packaging and performance-based materials and equipment systems worldwide. Market cap of $2.82B. Takeover/LBO rumor sourced from Seeking Alpha. P/FCF at 11.75. TTM gross margin at 30.49% vs. industry gross margin at 23.18%. TTM operating margin at 11.88% vs. industry operating margin at 10.12%. TTM pretax margin at 7.14% vs. industry pretax margin at 6.62%. The stock has lost 14.49% over the last year.

5. Gannett Co., Inc. (GCI): Operates as a media and marketing solutions company in the United States and internationally. Market cap of $2.40B. Takeover/LBO rumor sourced from Wall St. Cheat Sheet. P/FCF at 3.81. TTM gross margin at 45.18% vs. industry gross margin at 43.13%. TTM operating margin at 19.18% vs. industry operating margin at 16.64%. TTM pretax margin at 14.61% vs. industry pretax margin at 13.10%. This is a risky stock that is significantly more volatile than the overall market (beta = 2.45). The stock is a short-squeeze candidate, with a short float at 10.39% (equivalent to 5.37 days of average volume). It's been a rough couple of days for the stock, having losing 13.75% over the last week.

*Profitability data sourced from Fidelity; all other data sourced from Finviz.

Source: 5 Profitable And Undervalued Targets For Takeover Or Buyout