8 Rallying Takeover/LBO Targets With Impressive Profitability

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Includes: ATHN, DLTR, IRDM, JWN, LB, MAT, RDC, SPGI
by: Kapitall

Analysts often speculate about potential takeover/leveraged buyout targets because, upon the announcement of a takeover, the target’s stock often jumps in price to reflect the takeover premium paid by the acquirer.

There are many different ways to single out potential targets, but the main goal is to find potentially undervalued companies with healthy operations.

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 constructed a universe of rumored takeover/LBO targets from various sources including CNN Money, and Seeking Alpha that are currently rallying above their 20-day, 50-day, and 200-day moving averages. We then screened this universe for those with impressive profitability, beating their industry peers on gross, operating, and pre-tax margins. (To access the complete universe of takeover targets, click here)

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.

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Do you think these companies are attractive takeover targets? Use this list as a starting-off point for your own analysis. List sorted by market cap.

1. The McGraw-Hill Companies, Inc. (MHP): Publishing Industry. Market cap of $12.89B. Takeover/LBO rumor sourced from Seeking Alpha. TTM gross margin at 62.05% vs. industry gross margin at 43.45%. TTM operating margin at 23.33% vs. industry operating margin at 16.98%. TTM pretax margin at 21.83% vs. industry pretax margin at 13.07%. The stock is currently trading at 3.19% above its 20-Day SMA, 2.64% above its 50-Day SMA, and 12.29% above its 200-day SMA. The stock has had a couple of great days, gaining 5.46% over the last week.

2. Limited Brands, Inc. (LTD): Apparel Stores Industry. Market cap of $12.08B. Takeover/LBO rumor sourced from Seeking Alpha. TTM gross margin at 42.16% vs. industry gross margin at 38.17%. TTM operating margin at 13.86% vs. industry operating margin at 9.69%. TTM pretax margin at 13.26% vs. industry pretax margin at 9.13%. The stock is currently trading at 5.81% above its 20-Day SMA, 0.49% above its 50-Day SMA, and 18.78% above its 200-day SMA. The stock has had a couple of great days, gaining 5.05% over the last week.

3. Nordstrom Inc. (NYSE:JWN): Apparel Stores Industry. Market cap of $10.55B. Takeover/LBO rumor sourced from Seeking Alpha. TTM gross margin at 42.58% vs. industry gross margin at 35.67%. TTM operating margin at 11.89% vs. industry operating margin at 8.01%. TTM pretax margin at 10.51% vs. industry pretax margin at 6.89%. The stock is currently trading at 7.88% above its 20-Day SMA, 5.37% above its 50-Day SMA, and 13.08% above its 200-day SMA. The stock has had a couple of great days, gaining 6.44% over the last week.

4. Mattel Inc. (NASDAQ:MAT): Toys & Games Industry. Market cap of $9.70B. Takeover/LBO rumor sourced from CNBC. TTM gross margin at 53.06% vs. industry gross margin at 45.66%. TTM operating margin at 15.54% vs. industry operating margin at 10.72%. TTM pretax margin at 14.08% vs. industry pretax margin at 8.40%. The stock is currently trading at 4.91% above its 20-Day SMA, 5.25% above its 50-Day SMA, and 12.74% above its 200-day SMA. The stock offers a good dividend, and appears to have good liquidity to back it up--dividend yield at 3.3%, current ratio at 2.65, and quick ratio at 2.06. The stock has gained 10.19% over the last year.

5. Dollar Tree, Inc. (NASDAQ:DLTR): Discount, Variety Stores Industry. Market cap of $8.46B. Takeover/LBO rumor sourced from CNN Money. TTM gross margin at 38.48% vs. industry gross margin at 35.67%. TTM operating margin at 11.34% vs. industry operating margin at 8.01%. TTM pretax margin at 11.35% vs. industry pretax margin at 6.89%. The stock is currently trading at 7.23% above its 20-Day SMA, 11.68% above its 50-Day SMA, and 25.59% above its 200-day SMA. The stock has had a good month, gaining 12.3%.

6. Rowan Companies Inc. (NYSE:RDC): Oil & Gas Drilling & Exploration Industry. Market cap of $5.02B. Takeover/LBO rumor sourced from Seeking Alpha. TTM gross margin at 37.92% vs. industry gross margin at 35.14%. TTM operating margin at 19.10% vs. industry operating margin at 17.81%. TTM pretax margin at 18.41% vs. industry pretax margin at 16.23%. The stock is currently trading at 4.87% above its 20-Day SMA, 1.61% above its 50-Day SMA, and 7.22% above its 200-day SMA. The stock has had a couple of great days, gaining 9.06% over the last week.

7. athenahealth, Inc. (NASDAQ:ATHN): Business Services Industry. Market cap of $1.54B. Takeover/LBO rumor sourced from Seeking Alpha. TTM gross margin at 62.26% vs. industry gross margin at 42.62%. TTM operating margin at 11.19% vs. industry operating margin at 9.88%. TTM pretax margin at 10.77% vs. industry pretax margin at 6.47%. The stock is currently trading at 12.01% above its 20-Day SMA, 5.99% above its 50-Day SMA, and 9.67% above its 200-day SMA. The stock is a short squeeze candidate, with a short float at 25.41% (equivalent to 23.46 days of average volume). The stock has had a couple of great days, gaining 7.02% over the last week.

8. Iridium Communications Inc. (NASDAQ:IRDM): Communication Equipment Industry. Market cap of $626.25M. Takeover/LBO rumor sourced from Seeking Alpha. TTM gross margin at 66.25% vs. industry gross margin at 49.58%. TTM operating margin at 16.25% vs. industry operating margin at 15.70%. TTM pretax margin at 14.56% vs. industry pretax margin at 13.92%. The stock is currently trading at 3.01% above its 20-Day SMA, 3.65% above its 50-Day SMA, and 1.83% above its 200-day SMA. The stock is a short squeeze candidate, with a short float at 19.09% (equivalent to 16.52 days of average volume). The stock has gained 6.09% over the last year.

*Profitability data sourced from Fidelity, 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.