Bank of America says Trump’s win will unlock small-cap merger deals
President-elect Donald Trump’s White House victory could boost merger and acquisition activity, and Bank of America thinks a group of small-cap stocks may benefit as target candidates. Small caps have already seen sizable gains following Trump’s win. The day after the election, the Russell 2000 moved nearly 6% higher. The move comes amid a broader postelection rally that’s seen all the three major averages hit fresh records. Last Friday, the S & P 500 and the Dow Jones Industrial Average briefly traded above 6,000 and 44,000, respectively, for the first time. “With Republican wins in the White House/Senate/likely the House, does this unleash an M & A pick-up? Many of our analysts think so, as it is widely expected that President-elect Trump could replace Lina Khan (current FTC chair), who has blocked multiple mergers (creating a ripple effect where concern of blocked deals discourages other deals),” analyst Jill Carey Hall told clients in a Thursday note. (Control of the House was subsequently called in favor of the GOP.) She also noted that bank deals have been more than 50% higher under Republican administrations than under Democrats and cited several small-cap sectors – namely, health care, tech, staples and utilities – as key beneficiaries of a potential M & A revival. In light of this, Bank of America screened the Russell 2000 for potential M & A targets that have more than 90% of their shares available for trading, three years of positive operating cash flow and three years of sales growth. Hall also filtered for stocks trading at a discount relative to their industry and that have low debt relative to earnings before interest and taxes. Below are some stocks that made the BofA list. Financial services company Bread Financial Holdings turned up, having a float of 98% of shares outstanding and three-year sales growth of 28%. This year, shares of the company have surged more than 73%. BFH YTD mountain BFH, year-to-date Last month saw a positive report from Columbus, Ohio-based Bread, when it posted a monthly delinquency rate of 6.4% , down from 6.5% a year ago. Bread’s net loss rate of 7.9% also declined from 8%, year over year. Halozyme Therapeutics was seen as another potential acquisition target by BofA. The biopharmaceutical company has a float of 99% and three-year sales growth of 105%. The stock has rallied more than 58% year to date. Wall Street is somewhat split on Halozyme. Of 11 analysts that cover the San Diego-based biotech, six rate it buy and five neutral. The Street’s average price target of nearly $63 a share implies almost 17% upside from Thursday’s close. Commercial Metals Company also showd up on BofA’s screen as a potential target. The Irving, Texas-based steelmaker had risen 19% year to date and, like Halozyme, nearly all of its stock is available to trade. Commercial Metal’s three-year sales growth was 18%.
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