Market Overview

Four Large Cap Buyout Candidates with Healthy Dividends (CA, GRMN, LO, NOC)

In a report this past week, analysts at the Merrill Lynch unit of Bank of America (NYSE: BAC) offered list of potential large cap leveraged buyout candidates.

All the companies that made their list have healthy cash flow, smart valuations and low corporate debt.

Here is a quick look at four of those candidates, which all offer generous dividends as well. They are CA Technologies (NASDAQ: CA), Garmin (NASDAQ: GRMN), Lorillard (NYSE: LO) and Northrop Grumman (NYSE: NOC).

CA Technologies

The dividend yield of this enterprise information technology management software company has grown more than 40 percent in the past five years and is now about 3.9 percent. CA Technologies is a S&P 500 component that sports a market capitalization near $11.5 billion.

Its price-to-earnings (P/E) ratio is lower than the industry average. And the return on equity is more than 16 percent, while the operating margin is higher than the industry average.

The consensus recommendation of the 13 analysts surveyed by Thomson/First Call who follow this stock is to hold shares, and it has been for the past three months. So not surprisingly, the share price has overrun the mean price target, or where analysts expect the share price to go. That means the analysts currently see no upside potential.

While the share price of CA Technologies has risen more than 11 percent year to date, shares have traded mostly between $24.50 and $25.50 since January. And the stock has underperformed competitors IBM (NYSE: IBM) and Oracle (NASDAQ: ORCL) over the past six months.

Garmin

This Swiss navigation product maker has suffered from an overabundance of competitors for a while now. The S&P 500 component has a market cap of about $6.5 billion, as well as a dividend yield near 5.2 percent.

The P/E ratio is less than the industry average, but the long-term earnings per share (EPS) growth forecast is less than seven percent. Garmin has a return on equity of about 16 percent. The short interest is about nine percent of the float.

Five of the 12 analysts surveyed recommend buying shares, but just as many recommend holding them. However, their mean price target is now more than 17 percent higher than the current share price. But that target is less than the 52-week high from last May.

The share price fell to a 52-week low on Friday, after declining about 21 percent since the beginning of the year. Over the past six months, this stock has underperformed the S&P 500.

Lorillard

This Greensboro, North Carolina-based menthol cigarette manufacturer is also a leader in the rapidly growing electronic cigarette category. Lorillard has a market cap of more than $15 billion and it offers a dividend yield of about 5.2 percent.

This S&P 500 company has a long-term EPS growth forecast of about nine percent, and its P/E ratio is less than the industry average. The return on investment is more than 66 percent. Shares sold short represent less than five percent of the float.

Only four of the 12 polled analysts recommend buying the stock. The consensus recommendation has been to hold shares for the past three months. The analysts believe Lorillard has some head room though, as their price target is about 11 higher than the current share price.

But shares are trading at about the same price as at the beginning of the year. However, the stock has outperformed rivals Altria (NYSE: MO) and Reynolds American (NYSE: RAI) over the past six months.

Northrop Grumman

Defense Department budget cuts but rising tensions with North Korea have given investors in defense contractors much to speculate over. This $16.1 billion market cap company is also an S&P 500 component, and its dividend yield is about 3.2 percent.

The P/E ratio is less than the industry average. The return on equity is about 20 percent, and the operating margin is greater than the industry average. The short interest is less than five percent of the company's float.

For at least three months, the analysts' consensus recommendation has been to hold shares. The mean price target is in the same neighborhood as the current share price, indicating that they see little potential upside at this time.

The share price dropped in January when competitor General Dynamics (NYSE: GD) posted a surprise earnings miss, but it has recovered this month. Over the past six months, the stock has underperformed General Dynamics but outperformed Lockheed Martin (NYSE: LMT).

Posted-In: altria ca technologies Garmin general dynamicsLong Ideas Short Ideas Dividends Trading Ideas Best of Benzinga

 

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