Mad Money

Cramer: Ugly Business But Good-Looking Stock?

DST Systems Ready For a Sale?

"It's not a great business, but I think this could be a terrific stock," said Cramer.

The Mad Money host was talking about DST - a company involved in information processing and software services and products.

"Clients are mainly financial firms like mutual funds and brokers, and it also has a smaller division which does billing statement printing and mailing services for all sorts of businesses, especially telecom and healthcare companies," Cramer explained.

The reason Cramer said the business was not great is because DST's financial business has been in decline for several years now—"it was down 12% in 2011, and it's expected to shrink by another 9% this year, although this division is expected to stabilize in 2013," Cramer said.

Typically, that's not the kind of stock that gets Cramer's attention. But this situation isn't typical.

Jim Cramer

DST also has a substantial portfolio of investments, "and I don't think they get nearly enough credit for these holdings," he said.

DST has a large stake in State Street, the custodial bank. Also they have significant real estate holdings, major investments in private equity funds, and some direct investments in private companies.

"When you add up all of these disparate assets on top of the core business, you get a sum of the parts valuation for DST that's worth a heck of a lot more than the current $62 and change share price," Cramer said.

Hence Cramer's outlook that DST could be a terrific stock.

The analyst community seems to share Cramer's sentiment. Credit Suisse estimated that the company is worth $75, or a 21% increase over where DST's traded on Friday Dec. 7th. And Sterne Agee upgraded the stock Friday with a $71 price target.

But there's more here than just a potentially undervalued company – "I see a number of signs suggesting that DST could be preparing to take itself private," said Cramer. "In recent months, DST has started to get aggressive about selling off some of its parts. I think they could keep selling the disparate parts until only the core business remains," Cramer said.

"Also, DST has bought back more than 60% of its outstanding shares over the last decade, and it's bought back 40% just since 2006."

Read More: Buybacks Expected to Increase

On top of that, Cramer added DST could even win a bid from private equity.

"If they sold off the billing statement printing and mailing business, which is in an industry that's way too competitive, they'd be left with a pure play financial services company. That's something a private equity buyer might find very attractive."

Read More: Private Equity Assets Hit Record $3 Trillion

All told, Cramer thinks there's real value in DST that can be unlocked, and he strongly believes that it will be unlocked."

What's the bottom line?

"DST has set itself on a path in which it has been unlocking its hidden value, something that should drive the stock higher. The company could be preparing to take itself private or it could catch a bid from a private equity firm. Should that happen, I think the stock could easily go to $75, giving you a quick 20% gain," Cramer concluded.

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