Managed healthcare company Amerigroup ( AGP), which has a specialty in providing publicly funded healthcare programs to Medicaid and Children's Health Insurance recipients is Morningstar's strongest healthcare takeover target because of an expected inflow of patients to the company when the Affordable Care Act becomes effective in 2014 if it's not overturned.

"Amerigroup - with its 2 million Medicaid members spread across 11 states - seems like a particularly attractive target," writes Morningstar.

A takeover could create back office efficiencies, while also providing a larger corporate managed healthcare provider an inroad into growing publicly funded healthcare programs. " The company has specialized expertise that could enable a historically commercial-market-focused peer such as Aetna ( AET) to compete in the Medicaid business," adds Morningstar. Currently, Morningstar also sees Amerigroup shares as 20% undervalued, even without a M&A catalyst.

Morningstar gives Amerigroup a three star rating and a fair value of $76 a share, a near 10% premium to its current share price of $69.78. The company is expected to earn $61 cents a share in its fourth quarter 2011 results due on Feb. 17, according to Zacks consensus estimates. Analysts give the company an estimated price target of $68 a share on 2012 revenue of $8.2 billion and profit of $188 million, according to data compiled by Bloomberg. For more on managed healthcare sector shares, see TheStreet's portfolio of top-rated managed healthcare stocks.

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