Navistar International Corp (NAV), Hillshire Brands Co (HSH): Billionaire Mario Gabelli’s Takeover Targets

Cereal

Gabelli also included $1.5 billion market cap cereal company Post Holdings Inc (NYSE:POST) in his discussion. Markets have awarded Post a premium valuation as well, with trailing and forward earnings multiples of 39 and 25 respectively, suggesting that GAMCO is not alone in thinking of it as a possible takeover target. Net income has been down significantly, going by recent reports, but Wall Street analysts apparently expect the company to recover. The billionaire also mentioned that he liked the company’s CEO.

We would compare Post to Kellogg Company (NYSE:K). That stock is a potential defensive pick, with a beta of 0.4 and a dividend yield of 2.7% at current prices and dividend levels. With the sell-side expecting earnings per share to do quite a bit better in 2014, its forward P/E is 16 (though of course as a larger company Kellogg is a much less likely acquisition target- if anything, it would be a suitor for a company like Post). We’d note that higher costs have caused Kellogg’s operating income and profits to fall from their levels a year ago.

Final thoughts

It looks to us like markets have already bid up some of these companies’ stock prices in anticipation of a potential deal, making them potentially risky investments if an offer is not made. Certainly Hillshire Brands Co (NYSE:HSH) and Post appear to be less interesting from a value perspective than the peers we’ve listed here (though we’d probably avoid Kellogg as well on the basis of its recent performance). Navistar International Corp (NYSE:NAV) also seems a bit speculative for our taste, or at least difficult to evaluate, given how weak this year’s and next year’s numbers are expected to be.

Disclosure: none