3 More Cash-Rich Takeover Targets

Includes: ARO, DOX, FRX
by: Bret Jensen
I was pleasantly surprised by the comments and traffic my article “3 Cash-Rich Takeover Targets” generated. Since I had a few emails asking for other suggestions, I went back to my notes and did some further research. Here are three more cash rich companies that should be considered as possible takeover targets:
Aeropostale, Inc. (NYSE:ARO) – Aeropostale operates as a mall-based specialty retailer of casual apparel and accessories. It designs, markets, and sells merchandise principally targeting 14 to 17 year-old young women and men. It sells to the same demographic as American Eagle (NYSE:AEO), but with a lower price point. It has net cash on the balance sheet of $3.25/share. It sells at a very reasonable 11 times this year’s earnings and less than 10 times 2012’s consensus earnings. Stock sells at less than one times sales and a 1 PEG. The stock is an undervalued equity, in my opinion, and good pickup for a larger retailer.
Amdocs (NYSE:DOX) - Amdocs Limited, through its subsidiaries, provides software and services to the communications, media, and entertainment industry service providers worldwide. The company’s software systems support revenue management, customer management, service and resource management, and service delivery. The company has a pristine balance sheet with $6.50/share in cash. DOX is selling at less than 13 times this year’s earnings and less than 12 times 2012’s projected earnings. Operating cash flow has been increasing faster than earnings. That its four largest customers make up 52% of revenues is the only caveat I would point out.
Forest Labs (NYSE:FRX) – Forest Laboratories, Inc. develops, manufactures, and sells branded and generic forms of ethical drug products. Its principal products include Lexapro for the treatment of depression in adults and adolescents, and generalized anxiety disorder in adults; Namenda for the treatment of Alzheimer's disease; Bystolic for the treatment of hypertension; and Savella for the management of fibromyalgia. Company has an amazing $13/share of cash on its balance sheet. Company is facing a patent cliff as Lexipro’s patent expires in March 2012 and FRX looks to have trough earnings of $1.20 in Fiscal 2013. This compares with a consensus of $3.67 for FY 2012. However, the company has at least 10 promising drugs in the pipeline including Dallsresp, Linaclotide for IBS, and the antidepressant Viibyrd. Given the amount of consolidation in the pharma industry, Forest Labs looks like a likely target in my opinion.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in FRX over the next 72 hours.