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Wall Street analysts said this week these stocks could be takeover candidates

Key Points
  • Analysts are watching XPO Logistics, Jagged Peak Energy, Puma Biotechnology, Mitek Systems, and Q2 Holdings for M&A activity.
  • "Given JAG's favorable acreage position and offset overlap, along with the large % ownership by Quantum, we view the company as an attractive takeout candidate," said SunTrust analyst Neal Dingmann.
A Mitek display at a trade show
Source: Mitek

Wall Street analysts this week saw an abundance of companies they say may be prime candidates for takeovers.

CNBC combed through sell-side research to find which trends analysts are watching for in their respective coverage worlds. M&A was definitely on their mind this week. Companies mentioned as takeover candidates were from a wide range of sectors from industrials to technology. They included names like XPO Logistics, Q2 Holdings, Mitek Systems, Jagged Peak Energy and Puma Biotechnology.

Last quarter shipper XPO Logistics lost some of its business with Amazon, reported weaker-than-expected earnings and issued a dire warning about its business.

"Sector M&A is heating up," wrote Jefferies analyst David Kerstens."XPO's current trading multiple. ... .makes it look increasingly attractive as a takeover target in our view."

The stock is down over 46 percent over the last 6 months.

Mitek Systems, which specializes in digital identification through mobile technology, got a boost by traders earlier in the week.

"We attribute the recent move to takeover speculation as some investors may believe that an announcement around a potential transaction could be near," wrote Benchmark analyst Mark Schappel last week in a note to clients.

Cloud-based digital banking solutions company, Q2 Holdings, is another one to watch according to analysts at Stephens.

They downgraded the stock to equal-weight earlier this week mostly on valuation and noted there was a chance of a buyout.

"If stock moves meaningfully higher, think likely from M&A (more speculation or takeout) or markets valuing higher 'frictionless' franchises," analyst Brett Huff said. He went on to say that a takeout is probably more unlikely at Q2 Holdings' current price.

Shares are down almost 5 percent over the last week.

Here's who else analysts are saying may be potential takeover candidates:

Jefferies- XPO Logistics, buy rating

"Sector M&A is heating up with takeover offers. ... .This compares to XPO's current trading multiple of 6.7x FY19E EV/EBITDA, making it look increasingly attractive as a takeover target in our view. As a result, XPO put its M&A strategy on hold and will partly utilize its $8bn acquisition war chest for share buy backs of up to $2.5bn, leading to a projected increase in net debt to $4.7bn, corresponding to 2.8x FY19E EBITDA. The first buyback for $1.0bn has already been completed for $56.1 per share, while we expect the second share buyback for $1.0bn has yet to start. "

Benchmark- Mitek Systems, buy rating

"The stock is also up 9% during the [the week of March 18) and it has blown through our former $12 price target. We attribute the recent move to takeover speculation as some investors may believe that an announcement around a potential transaction could be near. We are raising our price target $3 to $15 given recent multiple expansion in the broader software sector and given recent positive developments at the Company. We reiterate our Buy rating."

Stephens- Q2 Holdings, equal-weight rating

"We really like QTWO's business (secular trends, leading product, backend-as-a-service options, strong management) but are downgrading from OW to EW on valuation and less-clear catalysts (upside from tier-one wins, BaaS optionality, and Cloud Lending upside seem partially built into price). If stock moves meaningfully higher, think likely from M&A (more speculation or takeout) or markets valuing higher 'frictionless' franchises. We are excited about BaaS/QTWO Open (but need visibility into faster growth than we have modeled to get more excited) and Cloud Lending (think loan origination market fragmented/little 'frictionless' on-boarding). Think current prices make takeout less likely. "

SunTrust- Jagged Peak Energy, buy rating

"The company IPO'd in January of 2017 prior to which backing was received from Quantum Energy Partners (private equity), which remains the largest shareholder today at 69%. Jagged has made a notable shift to baseload versus appraisal development that should contribute to even higher well returns this year. Further, given JAG's favorable acreage position and offset overlap, along with the large % ownership by Quantum, we view the company as an attractive takeout candidate. As such, we forecast ˜20% annual growth leading to FCF by mid-2020 or sooner. "

Cantor Fitzgerald- Puma Biotechnology, overweight rating

"We reiterate our Overweight rating and $57 Price Target. We spoke to the CEO of Puma today after the announcement of its partnership with Pierre Fabre in Europe. The stock traded down on the news, most likely because investors may think that M&A is less likely. Although M&A is not our thesis, we think that the likelihood of potential M&A remains about the same. Management noted other companies like Pharmacyclics and Medivation that did deals in Europe for royalties and then were acquired. "

Correction: This story was revised to correct that analyst Brett Huff was referring to Q2 Holdings when he said a takeout is probably more unlikely at the current price.