Most likely large-cap and small-cap merger candidates -BofA

May 15, 2022 11:42 AM ETBorgWarner Inc. (BWA), AGXBBWI, SP500, SPY, XLF, AAP, BBW, RL, TPR, UAA, DVA, HSIC, BIO, CRL, HII, IEX, JNPR, SEE, WRK, RTY, IWN, ATKR, BCC, CPRX, ECOM, CRAI, DFIN, WIRE, HSII, HI, IIPR, IDCC, KFY, KLIC, MATX, MOV, MLI, PRDO, PLAB, PCH, SAFM, SIG, SWBI, LRN, RGR, SUPN, VNDA, VEC, VSH, ZDBy: Kim Khan, SA News Editor43 Comments

Connected puzzle pieces with the acronym M&A. Merger and acquisition in business

cagkansayin/iStock via Getty Images

BofA Securities screened for stocks with the the characteristics most likely to attract suitors, both in the large- and small-cap universes.

For S&P 500 (SP500) (SPY) targets, BofA:

  • Screens based on its preferred valuation metric of free cash flow to enterprise value (FCF/EV) for those trading below the universe median.
  • Excludes Financials (XLF) and managed care companies.
  • Limits market cap to $15B or below and requires a history of stable earnings.
  • With growth a motivation, the screen is limited to companies with long-term growth rates above the universe median.

The top large-cap M&A candidates are:

  1. BorgWarner (NYSE:BWA), FCF/EV 3.4%, consensus LTG 28%
  2. Advance Auto Parts (AAP), 3.6%, 15.3%
  3. Bath & Bod Works (BBWI), 5.9%, 16.9%
  4. Ralph Lauren (RL), 6.7%, 80.2%
  5. Tapestry (TPR), 7.5%, 17.2%
  6. Under Armour (UAA), 6%, 56.3%
  7. DaVita (DVA), 5.2%, 11.7%
  8. Henry Schein (HSIC), 4.5%, 16.8%
  9. Bio-Rad Labs (BIO), 2.8%, 13.9%
  10. Charles River Labs (CRL), 2.4%, 14.5%
  11. Huntington Ingalls (HII), 2.5%, 13.6%
  12. IDEX (IEX), 2%, 12%
  13. Juniper Networks (JNPR), 2.6%, 13.9%
  14. Sealed Air (SEE), 2.4%, 12.1%
  15. WestRock (WRK), 3.6%, 20%

For Russell 2000 (RTY) (IWN) targets, BofA looks for:

  • Single share class
  • Float greater than 90%
  • Three years of positive operating cash flow
  • Positive 3-year sales growth
  • A 15% discount to industry group median valuation on EV/OCF, EV/FCF, EV/EBIT
  • Below industry group median net debt/EBIT

Top small-cap M&A candidates are:

  1. Argan (NYSE:AGX), EV/OCF 4.3, EV/FCF 4.6, EV/EBIT 2.4
  2. Atkore (ATKR), 8, 9. 4.9
  3. Boise Cascade (BCC), 4.2, 4.9, 2.9
  4. Catalyst Pharma (CPRX), 9.9, 10.1, 11.4
  5. Channeladvisor (ECOM), 10, 11.7, 18
  6. CRA International (CRAI), 9, 9.3, 12.2
  7. Donnelley Financial (DFIN), 6.1, 8, 4.7
  8. Encore Wire (WIRE), 3.3, 4.3, 2.1
  9. Heidrick & Struggles (HSII), 1.6, 1.7, 3.8
  10. Hilenbrand (HI), 7.7, 8.4, 9.1
  11. Innovate Industrial Properties (IIPR), 19.2, 19.2, 26.8
  12. InterDigital (IDCC), 9.6, 9.8, 11.5
  13. Korn Ferry (KFY), 7.2, 7.9, 7
  14. Kulicke and Sofia Industries (KLIC), 6.3, 6.7, 4.2
  15. Matson (MATX), 4.4, 6.5, 3.8
  16. Movado Group (MOV), 4.8, 5, 5.4
  17. Mueller Industries (MLI), 7.6, 8.1, 4.2
  18. Perdoceo Education (PRDO), 1.6, 1.7, 2.1
  19. Photronics (PLAB), 4.9, 12.3, 7.6
  20. PotlatchDeltic (PCH), 7.3, 8.5, 6.9
  21. Sanderson Farms (SAFM), 4, 4.9, 4
  22. Signet Jewelers (SIG), 3.3, 3.7, 4.6
  23. Smith & Wesson (SWBI), 2.4, 2.6, 1.7
  24. Stride (LRN), 9.5, 9.8, 10
  25. Sturm, Ruger (RGR), 5.7, 6.8, 4.8
  26. Supemus Pharma (SUPN), 12.5, 12.7, 13
  27. Vanda Pharma (VNDA), 2.1, 2.1, 3.2
  28. Vectrus (VEC), 8.7, 10.4, 8.1
  29. Vishay Intertechnology (VSH), 5.2, 9.9, 5
  30. Ziff Davis (ZD), 8.6, 11, 19.8

See the latest M&A news.

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