4 Oversold Takeover/LBO Targets Undervalued By Levered Free Cash Flows

by: Kapitall

Do you like to follow potential takeover/leveraged buyout (LBO) targets?

Analysts and investors closely follow potential takeover targets because when a company announces that it is being taken over, its stock price usually jumps to reflect the takeover premium being paid for the company.

We compiled a list of potential takeover/LBO targets from various sources including CNN Money and iStockAnalyst. We then screened these names for those that appear undervalued from the ratio 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. The higher the ratio, the more undervalued the company appears.

‪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 are attractive takeover targets? Use this list as a starting point for your own analysis.

1. Apollo Group Inc. (NASDAQ:APOL): Provides educational programs and services at the undergraduate, master's, and doctoral levels. RSI(14) at 16.95. Takeover/LBO rumor sourced from Wall St. Cheat. Levered free cash flow at $763.65M vs. enterprise value at $4.30B (implies a LFCF/EV ratio at 17.76%).

2. DG FastChannel, Inc. (NASDAQ:DGIT): Provides digital technology services that enable the electronic delivery of advertisements, syndicated programs, and video news releases to traditional broadcasters, online publishers, and other media outlets. RSI(14) at 28.48. Takeover/LBO rumor sourced from iStockAnalyst. Levered free cash flow at $75.12M vs. enterprise value at $673.68M (implies a LFCF/EV ratio at 11.15%).

3. RadioShack Corp. (NYSE:RSH): Engages in the retail sale of consumer electronic goods and services through its RadioShack store chain and kiosk operations. RSI(14) at 33.55. Takeover/LBO rumor sourced from CNN Money. Levered free cash flow at $163.04M vs. enterprise value at $783.10M (implies a LFCF/EV ratio at 20.82%).

4. SAIC, Inc. (SAI): Offers scientific, engineering, systems integration, and technical services to various branches of the U.S. military and U.S. government. RSI(14) at 36.42. Takeover/LBO rumor sourced from Seeking Alpha. Levered free cash flow at $818.75M vs. enterprise value at $4.56B (implies a LFCF/EV ratio at 17.96%).

*LFCF/EV 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.