Charles River Laboratories

Drug research services giant Charles River Laboratories ( CRL)may be a leveraged buyout candidate because of its predictable earnings, diminished share prices and management issues, according to Morningstar. "Private equity firms have historically demonstrated a strong interest in contract research organizations , which have been out of favor in the market for some time and ripe for restructuring efforts," write Morningstar analysts.

In Oct. 2011, private equity giants The Carlyle Group and Hellman & Friedman bought PPD ( PPDI) for $3.9 billion at a 30% premium, and INC Research, owned by Avista Capital Partners and the Ontario Teachers' Pension Plan, bought Kendle International ( KNDL) for $232 million in May 2011. "Charles River could be the next logical takeout candidate, despite modest leverage," writes Morningstar.

So-far-unsuccessful cost cutting initiatives may also be attractive for a buyer to wrench out operational gains, while the company's stable cash flows set up nicely for a private equity acquirer.

Morningstar gives Charles River Laboratories a five star rating and a fair value of $50 a share, an over 50% premium to current share prices of $32.78. The company is expected to earn $56 cents a share in its fourth quarter 2011 results due on Feb. 13, according to Zacks consensus estimates. Analysts give the company an estimated price target of $34.71 a share on 2012 revenue of $1.14 billion and profit of $107 million, according to data compiled by Bloomberg. For more on Charles River shares, see 8 biotech stocks to watch.

Onyx Pharmaceuticals ( ONXX), BioMarin ( BMRN) and Seattle Genetics ( SGEN) are Morningstar's top pharmaceutical takeover targets for a large-cap acquirer.

With the retirement of two top executives, large cash stockpiles and a slow R&D pipeline for new drugs, Morningstar highlights Amgen ( AMGN) as a the most likely acquirer in the pharmaceutical space. "We believe the new blood might be beneficial to the firm's productivity and reputation, and could potentially trigger a wave of acquisitions to replenish the pipeline and jumpstart the company," writes Morningstar.

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