LeapFrog: A Deal Could Be on the Cards

LeapFrog Enterprises Inc. (LF) sees quick 25 cents pop ; upside attributed to a Reuters report regarding potential for a deal between $7.50 and $10.00 a share. According to the report, LeapFrog’s disappointing outlook last month battered its shares, making the company a potential $650 million target for Mattel Inc (MAT) or Hasbro Inc (HAS), the two largest U.S. toy makers.

Fund manager Robert Auer, who sold his stake in LeapFrog in the wake of the company’s weak outlook, thinks “a deal could be on the cards given [Mattel’s] history of acquiring rival toy lines.”

“You can make the case that LeapFrog can get an offer between $7.50 and $10 a share, depending on how the deal is priced,” said Auer, senior portfolio manager at SBAuer Funds, who has bought and sold the stock several times.

An offer at $10 p/sh would value LeapFrog at $645 million, more than double its current market cap. LF currently trades at a 0.70x on a price/sales basis. The equity has a trailing P/E of 33.70, a forward P/E of 15.69 and a P/E to Growth ratio of 5.33. The median Wall Street price target on the stock is $6.00 with a high target of $7.00.

At last check, shares of LeapFrog were up 18 cents, or 4.42%, to $4.49.

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