Since peaking in 2021, there's been less appetite for mergers and acquisitions (M&A) activity. In addition to higher interest rates curbing the appetite for deals, the Federal Trade Commission (FTC) under the Biden administration took a decidedly antitrust posture.
But that's expected to change with the election of Donald Trump. The president-elect has already signaled that a policy shift in the FTC will be one of his top priorities. You also need to consider that there is a record $2.6 trillion sitting with private equity firms.
And those firms will be looking at mid-cap stocks (stocks with a market capitalization between $2 and $15 billion). That's because since the turn of the century, mid-cap stocks as measured by the S&P Midcap 400 Index has posted a total return that is 39% higher than the S&P 500 Index and the Russell 2000 Small Cap Index.
In this special presentation, we're analyzing seven mid-cap stocks that may be acquisition targets in 2025.
Quick Links
- Dropbox
- Bath & Body Works
- Crocs
- Frontdoor
- Alpha Metallurgical Resources
- Catalyst Pharmaceuticals
- Lantheus Holdings
#1 - Dropbox (NASDAQ:DBX)
Dropbox Inc. (NASDAQ: DBX) is a content collaboration platform. The company faces significant competition that is creating a situation where the company is seeing its user growth slow to a relative trickle (18k new subscribers in its most recent quarter versus a total user base of around 18 million). That’s a key reason why revenue increased just 0.9% year-over-year (YOY), which is down from the already slow 1.9 YOY growth rate in the prior quarter.
But what the company may lack in growth, it makes up for with an appealing valuation and solid free cash flow (although it is still has a net debt position). Dropbox also recently announced a major round of layoffs (approximately 20% of its workforce) which can also make the company more attractive as a takeover target.
Analysts are neutral on DBX stock with a consensus Hold rating. The stock is down 3% for the year, but it’s up 9% in the month ending November 25, 2024.
About Dropbox
Dropbox, Inc provides a content collaboration platform worldwide. The company's platform allows individuals, families, teams, and organizations to collaborate and sign up for free through its website or app, as well as upgrade to a paid subscription plan for premium features. It serves customers in professional services, technology, media, education, industrial, consumer and retail, and financial services industries.
Read More - Current Price
- $28.52
- Consensus Rating
- Hold
- Ratings Breakdown
- 2 Buy Ratings, 3 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $28.67 (0.5% Upside)
#2 - Bath & Body Works (NYSE:BBWI)
Bath & Body Works Inc. (NYSE: BBWI) is a name that many investors have looked past since it spun off the Victoria’s Secret brand. However, the retailer of home fragrances, body care products, sanitizers and similar products is finding its footing as a smaller company that garners strong brand loyalty from its consumer base, which is heavily comprised of the millennial and Gen-Z demographic.
That strength was reflected in the company’s third-quarter earnings report for its 2025 fiscal year. The company topped analysts’ estimates on the top and bottom lines. Bath & Body Works generated 52 cents in earnings per share (EPS) on revenue of $1.61 billion. Both numbers were also higher than the same quarter in its FY 2024 third quarter.
Other factors that may make Bath & Body Works an attractive takeover candidate is a forward price-to-earnings (P/E) ratio of 9.6x and a stock price as of November 25, 2024, of $35.92. That’s 17.6% below analysts' consensus price target of $42.25.
About Bath & Body Works
Bath & Body Works, Inc operates a specialty retailer of home fragrance, body care, and soaps and sanitizer products. It sells its products under the Bath & Body Works, White Barn, and other brand names through retail stores and e-commerce sites located in the United States and Canada, as well as through international stores operated by partners under franchise, license, and wholesale arrangements.
Read More - Current Price
- $35.78
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 9 Buy Ratings, 6 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $42.25 (18.1% Upside)
#3 - Crocs (NASDAQ:CROX)
Crocs Inc. (NASDAQ: CROX) is an American footwear company that’s best known for its iconic Crocs foam clogs but has expanded to include a diverse selection of comfortable and stylish footwear for consumers of all ages. Because of sustained demand for its products the company maintains strong profit margins that it has put into share repurchases and retiring debt.
However, year-over-year revenue growth is slowing. This is particularly true for its HEYDUDE brand. That’s to be expected as consumers get tighter with discretionary spending. However, that growth is expected to pick up as consumers get relief in the form of lower interest rates.
CROX stock has a compelling P/E ratio of just 7.8x. Despite that, the stock is up 13.5% in 2024 as of November 25. And that includes a 28% drop in the stock in the prior six months.
Analysts give Crocs a Moderate Buy rating with a consensus price target of $148.80 which offers investors 36% upside growth.
About Crocs
Crocs, Inc, together with its subsidiaries, designs, develops, manufactures, markets, distributes, and sells casual lifestyle footwear and accessories for men, women, and children under Crocs and HEYDUDE Brand in the United States and internationally. The company offers various footwear products, including clogs, sandals, slides, flips, wedges, platforms, socks, boots, charms, flip flops, sneakers, and slippers.
Read More - Current Price
- $108.53
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 12 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $148.80 (37.1% Upside)
#4 - Frontdoor (NASDAQ:FTDR)
Frontdoor Inc. (NASDAQ: FTDR) is one of the leading providers of home warranties in the United States. As the company’s 2024 earnings reports show, the home warranty business is largely agnostic to the broader housing market. That's because for a company like Frontdoor, the key to the business model is subscription renewal.
Year-over-year revenue in 2024 is up about 3%. But in the last quarter, YOY earnings per share increased by 46%. The company also continues to post positive net income and free cash flow.
This highlights two factors driving business growth. First, home ownership is rising among younger generations which are more likely to purchase a home warranty particularly as the average age of a home in the United States is around 40 years old.
The company’s growth is also showing up in the FTDR stock price which is up 65.9% in 2024 as of November 25. That has the stock about 17.5% above the consensus price target of analysts.
About Frontdoor
Frontdoor, Inc provides home warranties in the United States in the United States. Its customizable home warranties help customers protect and maintain their homes from costly and unplanned breakdowns of essential home systems and appliances. The company's home warranty customers subscribe to an annual service plan agreement that covers the repair or replacement of principal components of approximately 20 home systems and appliances, including electrical, plumbing, water heaters, refrigerators, dishwashers, and ranges/ovens/cooktops, as well as electronics, pools, and spas and pumps; and heating, ventilation, and air conditioning systems.
Read More - Current Price
- $59.54
- Consensus Rating
- Hold
- Ratings Breakdown
- 3 Buy Ratings, 1 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $49.50 (16.9% Downside)
#5 - Alpha Metallurgical Resources (NYSE:AMR)
Alpha Metallurgical Resources Inc. (NYSE: AMR) is an acquisition target that’s part of the ongoing Trump trade. The pure-play coal mining company produces, processes, and sells met coal which is needed to make steel as well as thermal coal.
However, it’s the company’s focus on met coal that may drive interest in a takeover. That’s because met coal is needed in steel manufacturing. However, that’s been a double-edged sword in 2024. That was expressed in a weak earnings report that showed revenue and earnings both coming in sharply below the prior year's numbers and analysts’ expectations.
The results aside, Alpha Metallurgical continues to have a strong balance sheet with little debt. It’s also in the early stages of a stock buyback program. The company does have competitors in the space, but it is the leader in mining at scale.
Analysts give AMR stock a Moderate Buy rating with a $336 consensus price target that would offer investors 36% upside.
About Alpha Metallurgical Resources
Alpha Metallurgical Resources, Inc, a mining company, produces, processes, and sells met and thermal coal in Virginia and West Virginia. The company offers metallurgical coal products. It operates twenty-two active mines and nine coal preparation and load-out facilities. The company was formerly known as Contura Energy, Inc and changed its name to Alpha Metallurgical Resources, Inc in February 2021.
Read More - Current Price
- $249.63
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 1 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $336.00 (34.6% Upside)
#6 - Catalyst Pharmaceuticals (NASDAQ:CPRX)
Biopharmaceutical companies frequently make enticing takeover targets. That’s usually because of the company’s pipeline. However, Catalyst Pharmaceuticals Inc. (NASDAQ: CPRX) offers investors a different proposition.
Catalyst is focused on developing and commercializing therapies for rare debilitating, chronic neuromuscular and neurological diseases in the United States. The company has three drugs in market. FIRDAPSE for rare neuromuscular diseases, AGAMREE for rare muscular dystrophy disease, and FYCOMPA for treating epileptic seizures. In the company’s third quarter earnings report, the company showed quarterly revenue that was up 25.3% YOY.
As of November 2024, the company has no drugs in its pipeline. But outside of its current collaborations, the company is actively looking for new partnerships that may allow it to expand its footprint outside the United States and to accelerate its growth into new therapeutic areas and larger markets.
Analysts have a consensus Buy rating on CPRX stock. The $31.14 price target would give investors 46% upside.
About Catalyst Pharmaceuticals
Catalyst Pharmaceuticals, Inc, a commercial-stage biopharmaceutical company, focuses on developing and commercializing therapies for people with rare debilitating, chronic neuromuscular, and neurological diseases in the United States. It offers Firdapse, an amifampridine phosphate tablets for the treatment of patients with lambert-eaton myasthenic syndrome (LEMS); and Ruzurgi for the treatment of pediatric LEMS patients.
Read More - Current Price
- $21.19
- Consensus Rating
- Buy
- Ratings Breakdown
- 7 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $31.14 (47.0% Upside)
#7 - Lantheus Holdings (NASDAQ:LNTH)
Lantheus Holdings Inc. (NASDAQ: LNTH) is a medical devices company that specializes in three areas: radiopharmaceutical oncology to in the words of the company “Find, Fight and Follow cancer; precision diagnostic products that can assist healthcare professionals specifically in areas like cardiology, and strategic partnerships that enable the movement towards precision medicine.
The company’s stock is up 44$ in 2024, but analysts believe it may just be getting started. As of November 2024, they give LNTH stock a Moderate Buy rating with a $122.50 price target that represents 35% upside for the stock.
That may be due, in part, to the company’s November 2024 announcement of a $250 million share buyback program that will be in place for one year. And lest you think that the company is issuing a buyback program to hide financial weakness, it’s important to note that Lantheus is delivering year-over-year growth in revenue and earnings.
About Lantheus
Lantheus Holdings, Inc develops, manufactures, and commercializes diagnostic and therapeutic products that assist clinicians in the diagnosis and treatment of heart, cancer, and other diseases worldwide. It provides DEFINITY, an injectable ultrasound enhancing agent used in echocardiography exams; TechneLite, a technetium generator for nuclear medicine procedures; Xenon-133, a radiopharmaceutical gas to assess pulmonary function; Neurolite, an injectable imaging agent to identify the area within the brain where blood flow has been blocked or reduced due to stroke; Cardiolite, an injectable Tc-99m-labeled imaging agent to assess blood flow to the muscle of the heart; and PYLARIFY, an F 18-labelled PSMA-targeted PET imaging agent used for imaging of PSMA positive-lesions in men with prostate cancer.
Read More - Current Price
- $90.96
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 8 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $122.50 (34.7% Upside)
According to Wedbush analyst Dan Ives, investors should prepare for “a tidal wave of tech M&A and overall deal activity" in a Trump administration. And if the M&A boom occurs, it won't only happen in tech; investors should also look at consumer staples, healthcare companies, and any company that has a healthy cash balance to put towards growth through acquisition strategy.
There's no guarantee that any of these stocks will be part of merger activity in 2025. If the Federal Reserve pauses on their rate cut campaign, it may make companies more hesitant to make deals. However, each of the companies in this presentation fit a pattern of having positive cash flow, sales growth, and little to no debt.
You can use the MarketBeat Stock Screener to find mid-cap stocks that fit those criteria. The Russell 2000 stock list on MarketBeat is another place to find attractive mid-cap stocks.
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