Morgan Stanley: 5 Top Takeover Targets For 2018

Morgan Stanley has just released a very intriguing report highlighting 15 stocks that are most likely to be bought in 2018. The firm singled out these acquisition targets by looking for large, liquid stocks from different sectors that are most likely to be acquired in the next 12 months. Lucky investors can see share prices soar when a takeover deal is announced, meaning that there is big value in identifying takeover targets correctly.

From the list, we used TipRanks to identify the top stocks with a bullish Street outlook. Four of the five stocks below boast a ‘Strong Buy’ analyst consensus rating. The fifth stock has a ‘Moderate Buy’ analyst consensus rating due to the number of ratings rather than the sentiment itself. The advantage of these five stocks is that they represent compelling investing opportunities, even if a takeover doesn’t materialize.

TipRanks’ algorithms track and rank almost 5,000 Wall Street analysts. This allows us to: 1) see the overall analyst consensus on any stock based on the last three months of ratings and 2) extract stock insights from the Street’s best-performing analysts. As you will see below, all the analysts singled out here have a very strong track record on their stock recommendations.

So with this in mind, let’s take a closer look now:

1. Domino’s Pizza 

Domino’s (NYSE:DPZ) is now experiencing one of its most hectic delivery days in the year. The company expects to sell over 13 million pizza slices and 4 million chicken wings across the US on Super Bowl Sunday—about 30% more pizza slices than a typical Sunday.

And we can immediately see from TipRanks that this pizza delivery giant scores a ‘Strong Buy’ rating from the Street. In the last three months Domino’s has received 8 buy ratings vs just two hold ratings. These analysts have an average price target on the stock of $230- suggesting over 7% upside from the current share price. You can click on the hyper-linked ticker above for further insights into DPZ’s ‘Strong Buy’ rating.

Top Credit Suisse analyst Jason West has just ramped up his DPZ price target from $220 to $235 (9.6% upside potential). The analyst, who has a 100% success rate on his DPZ recommendations, is feeling more bullish on DPZ due to the new tax reforms and lower tax rate.

2. Graphic Packaging

You’ve probably purchased food, beverages or other consumer products sold in packaging by this company (NYSE:GPK). According to the Street, Graphics Packaging has a ‘Strong Buy’ analyst consensus rating and big upside potential of 25% to boot.

Most recently, RBC Capital’s Arun Viswanathan ramped up his $17 price target to $19 (19% upside) while reiterating his buy rating. He attributes the bullish move to 1) tax benefits and 2) the recent $5 billion offer for KapStone from packaging company WestRock on February 1.

3. Pinnacle Foods 

Pinnacle Foods (NYSE:PF) specializes in shelf stable and frozen food categories. Its famous brands, which include Birds Eye vegetables and Log Cabin syrups, are found in over 85% of US households. But most interesting of all is that Dan Loeb’s Third Point fund has just taken a stake in PF-, leading to heightened acquisition speculation.

Stephens analyst Farha Aslam reiterated her buy rating on January 29 with a $65 price target (8% upside). According to Aslam, an activist campaign would likely lead to a sale, perhaps to Conagra Foods (CAG) or Tyson Foods (TSN)- rather than simple operational/management changes. In the event of an acquisition, Aslam sees Pinnacle valued at $67-$70. She notes that Tyson Foods acquired sausage company Hillshire Brands for a whopping $8.55 billion in 2014.

From a Street perspective, TipRanks reveals that this ‘Strong Buy’ stock has scored only buy ratings over the last year. If we look just at the last three months, analysts see Pinnacle spiking to $67 (11% upside) from the current $60 share price.

4. Express Scripts 

Express Scripts (Nasdaq:ESRX) is the largest pharmacy benefit management organization in the US. TipRanks reveals that the company has a ‘Strong Buy’ analyst consensus rating from best-performing analysts. One of these analysts is JP Morgan’s Lisa Gill. She calls ESRX her top pick in Healthcare Technology & Distribution for fiscal 2018.

Gill believes that key account wins will boost ESRX’s EPS to the high-end of its targeted range. At the same time, she sees a favorable backdrop for pharmacy benefit managers with increased script volume. Gill has an $85 price target on ESRX while the Street is even more bullish with an $89 price target (16% upside).

5. WR Grace

This US chemicals conglomerate (NYSE:GRA) has only received two recent analyst ratings- hence its Moderate Buy analyst consensus. However, both these ratings are bullish. In particular, we can see that KeyBanc’s Michael Sison highlights the opportunity for large M&A as one of the stock’s ongoing catalysts. Indeed, the company has just signed a $416 million deal for Albemarle’s (ALB) polyolefin catalysts and components business for $416 million. Sison has a buy rating on GRA with an $87 price target (21% upside).

Disclaimer: TipRanks is an independent cloud based service that measures and ranks digitally published financial advice. TipRanks' natural language processing (NLP) algorithms aggregate and ...

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