Shares of Barnes & Noble after Credit Suisse raised its rating on the stock and called the bookstore chain a strong candidate for a leveraged buyout.
Analyst Gary Balter said consistent cash flow and relatively cheap valuation made the company an appealing target for buyout firms. Private equity firms have acquired several retailers in recent months, including Petco Animal Supplies Inc. and arts and crafts retailer Michaels Inc (Play-By-Play: CNBC's Pisani on Possible Barnes and Noble LBO).
Balter raised his rating on Barnes & Noble to "outperform" from "underperform." He also downgraded rival chain Borders Group to "neutral" from "outperform," saying a turnaround there was taking longer than expected.
"Ironically, (a leveraged buyout) of Barnes, should it occur, would make the likelihood of a similar event for Borders much greater," he wrote in a note to clients. "In fact, an LBO of the two of them together may make the most sense for someone exploring one or the other."
Barnes & Noble did not immediately return a call and e-mail seeking comment. Borders could not immediately be reached for comment.
Balter said he had been concerned that Barnes & Noble would lose business to Borders after that chain launched a rewards program that gave shoppers a discount after spending at least $50 in a month.
In fact, he said the rewards program was off to a slow start, and discount redemptions and customer traffic were so far not as strong as he had expected.
"The turnaround that we projected (at Borders) appears to be further away," he wrote.
The bookstore chains have been the subject of takeover rumors after activist investor William Ackman's Pershing Square Capital Management took stakes in both companies.
Valuation made Barnes & Noble even more attractive, Balter said, noting that it trades at 5.9 times next year's earnings before interest, taxes, depreciation and amortization, a discount to Borders' 7.3 multiple.