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Retail's Next Take Out Target?

Wednesday, 13 Oct 2010 | 5:50 PM ET

After Gymboree was taken out by private equity at a 23% premium, the Street’s favorite game has been -- who’s next?

On Tuesday JPMorgan said it could be OfficeMax. "Given recent smoldering in private equity markets, retail stock performance, and valuation on potential earnings power... the combination of leverage potential, the ability to restructure, feasible exit strategies, and potential returns make OMX stand out," the brokerage said.

Top ranked Citi analyst Kate McShane thinks there are some other names in the crosshairs. They follow:

Foot Locker
Finish Line
Timberland
Liz Claiborne

Office Depot
Office Max
Advance Auto Parts
Williams-Sonoma

How did McShane come up with these stocks?

Ear to the Wall: The Next Takeover Target
A breakdown of who could be next, with Kate McShane, Citi analyst.

"We screened companies looking for names that have characteristics indicative of a good LBO takeout candidates," she explains, "including undervalued multiple, good cash flow, low debt level and the possibility of improved operating margins."

"The names that screened the best are Footlocker and Finish Line," she adds. They're attractive because of their balance sheets. Footlocker has low debt levels and Finish Line has no debt."

After crunching the numbers McShane says Footlocker could go for $19.

* Check out our entire conversation with McShane. Watch the video now.

As you might remember, on Tuesday’s Fast Money Karen Finerman presented 4 names that she thought might be attractive to buyers.

Click here to go to“Finerman: 4 Retailers Attractive M&A Targets?”




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Trader disclosure: On Oct.13, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Finerman owns (GOOG); Finerman’s Firm owns (IBM); Finerman and Finerman’s Firm own (JPM); Finerman and Finerman’s Firm own (BAC); Finerman’s Firm own (MSFT); Finerman’s Firm owns (RIG); Finerman’s Firm owns (WMT); Finerman's firm is short (IJR); Finerman's firm is short (MDY); Finerman's firm is short (SPY); Finerman's firm is short (IWM); Finerman’s firm owns S&P 500 puts; Finerman’s firm owns Russell 2000 puts; Terranova Owns (APA), (AAPL), (IBM), (OXY), (RSH), (UPL), (XBI), (JOYG), (C), (AXP), (SWN), (AGU), (EOG), (HES), (OIH), (ORCL), (SU), (VRTS), (FTO), (RIG), (PEP), (POT), (CRM), (CF), (VMW); Terranova Owns (AAPL) puts; Pete Najarian owns (DD), (TSO), (YHOO), (AKAM), (BMC), (F), (LVS); Simon Baker Owns (SLW), (IGTE); Simon Baker's Firm Owns (SLW)

For Anthony Scaramucci
Scaramucci and SkyBridge Capital own (RL)

For Brian Kelly
Accounts managed by Kanundrum Capital own (ANDE)
Accounts managed by Kanundrum Capital own (ADM)
Accounts managed by Kanundrum Capital own (GS)
Accounts managed by Kanundrum Capital own (JEF)
Accounts managed by Kanundrum Capital own (MSFT)
Accounts managed by Kanundrum Capital own (GLD)
Accounts managed by Kanundrum Capital own (GDXJ)
Accounts managed by Kanundrum Capital own (SLV)
Accounts managed by Kanundrum Capital own (GPRE)
Accounts managed by Kanundrum Capital are short U.K. Pound
Accounts managed by Kanundrum Capital are short Mexican Peso

For Joe Terranova
Terranova is chief market strategist of Virtus Investment Partners, LTD.
Virtus Investment Partners own more than 1% of (ABAX)
Virtus Investment Partners own more than 1% of (ALK)
Virtus Investment Partners own more than 1% of (AMKR)
Virtus Investment Partners own more than 1% of (CASS)
Virtus Investment Partners own more than 1% of (CSVI)
Virtus Investment Partners own more than 1% of (IGE)
Virtus Investment Partners own more than 1% of (LDR)
Virtus Investment Partners own more than 1% of (LPHI)
Virtus Investment Partners own more than 1% of (MGRC)
Virtus Investment Partners own more than 1% of (NRCI)
Virtus Investment Partners own more than 1% of (DBV)
Virtus Investment Partners own more than 1% of (XLB)
Virtus Investment Partners own more than 1% of (XLP)
Virtus Investment Partners own more than 1% of (XLY)
Virtus Investment Partners own more than 1% of (XLF)
Virtus Investment Partners own more than 1% of (XLI)
Virtus Investment Partners own more than 1% of (XLU)
Virtus Investment Partners own more than 1% of (SUBK)
Virtus Investment Partners own more than 1% of (WDFC)
Virtus Investment Partners own more than 1% of (YDNT)
Virtus Investment Partners own more than 1% of (DRYS)

For Kate McShane
An employee of Citigroup Global Markets Inc. is a director of (BBY)
Kate McShane owns (BBY)
Citigroup is a market maker in (COLM), (FINL), (SPLS), (BBBY), (ORLY)
Citigroup has a significant financial interest in relation (NKE), (VFC), (BBY), (ODP), (SPLS)
Citigroup received investment-banking compensation within the past 12 months from (LIZ), (VFC), (ODP), (AZO), (SPLS)
Citigroup received compensation for non-investment banking services from (FL), (LIZ), (NKE), (PVH), (RL), (VFC), (BBY), (ODP), (OMX), (WSM), (AZO) (COLM), (SPLS) (BBBY) in the past 12 months
Citigroup had within the past 12 months, (LIZ), (VFC), (ODP), (AZO), (SPLS) were investment banking clients

For Mike Khouw
Cantor Fitzgerald makes a market in (FCX)

For Steve Sakwa
***No Disclosures***

CNBC.com with wires.

  Price   Change %Change
AAP
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FINL
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FL
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ODP
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BCD
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WSM
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KATE
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