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According to reports, French pharma giant Sanofi-Aventis (NYSE:SNY) is considering making several U.S. biotech acquisitions; including one or two that could be worth at least $15 billion.

On the news shares of Biogen (NASDAQ:BIIB), Allergan (NYSE:AGN) and Genzyme (GENZ) all shot higher.

The press will spend a lot of time analyzing these three names, but what about other smaller healthcare stocks that might become takeover targets if there's further consolidation in the industry?

To compile this list of possible acquisition targets in the healthcare sector, we used the following criteria for a screen:

  • Companies with large amounts of cash: When one company buys another, it can use the cash held by the acquired company to help offset the cost of buying that same company. Companies with significant cash positions are therefore far more attractive to the potential acquirer. In our screen, we only focus on companies with Price / Cash ratios below 4, and Price / Free Cash Flow ratios below 10.
  • Low Insider Ownership: Because it's common for the target company's management to lose their jobs during a takeover, management will often put up a fight. Companies with low insider ownership are therefore far less likely to resist a takeover. We've only selected companies with inside ownership below 5%.
  • Profitability: In order to be an attractive takeover target, a company must be able to generate large profits relative to its size. In this screen we only focus on companies with projected EPS growth of 5% or more over the next 5 years.

Of course, evaluating the drugs being developed by some of these companies will be a key factor in determining if they're attractive takeover targets, but we won't be going into such detail. Use this list as a starting point.

Here is a list of the stocks in this screen, along with their performance over the last year. It's interesting to note that most of these stocks have seen heavy insider selling over the last few months, which raises some questions about their attractiveness as takeover targets. A more detailed analysis follows below.

click for expanded images

1. Allied Healthcare International Inc. (NASDAQ:AHCI): Home Health Care Industry. Market cap of $101.57M. P/E ratio of 9.38, forward P/E of 6.62, and PEG ratio of 0.94. Price / Cash ratio of 2.44, and Price / Free Cash Flow of 7.63. The company's EPS have grown by 16.84% over the last 5 years, while analysts project EPS to grow by 10% over the next 5 years. Insiders, who currently own 0.7% of the company, have not made any transactions in their own shares over the last 3 months.

2. Cephalon Inc. (NASDAQ:CEPH): Drug Manufacturer. Market cap of $4.2B. P/E ratio of 11.19, forward P/E of 7.65, and PEG ratio of 1.05. Price / Cash ratio of 2.24, and Price / Free Cash Flow of 6.64. The company's EPS have grown by 17.94% over the last 5 years, while analysts project EPS to grow by 10.7% over the next 5 years. Insiders, who currently own 0.62% of the company, have reduced holdings by -25.55% over the last 3 months.

3. Endo Pharmaceuticals Holdings Inc. (NASDAQ:ENDP): Drug Manufacturer. Market cap of $2.56B. P/E ratio of 9.04, forward P/E of 6.72, and PEG ratio of 0.88. Price / Cash ratio of 3.02, and Price / Free Cash Flow of 7.15. The company's EPS have grown by 15.98% over the last 5 years, while analysts project EPS to grow by 10.26% over the next 5 years. Insiders, who currently own 0.39% of the company, have reduced holdings by -0.39% over the last 3 months.

4. Humana Inc. (NYSE:HUM): Health Care Plans Industry. Market cap of $7.55B. P/E ratio of 6.87, forward P/E of 8.14, and PEG ratio of 0.83. Price / Cash ratio of 0.88, and Price / Free Cash Flow of 3.88. The company's EPS have grown by 29.99% over the last 5 years, while analysts project EPS to grow by 8.3% over the next 5 years. Insiders, who currently own 0.69% of the company, have reduced holdings by -3.29% over the last 3 months.

5. King Pharmaceuticals Inc. (KG): Drug Manufacturer. Market cap of $1.85B. P/E ratio of 17.26, forward P/E of 9.76, and PEG ratio of 1.88. Price / Cash ratio of 3.7, and Price / Free Cash Flow of 4.94. The company's EPS have grown by -13.86% over the last 5 years, while analysts project EPS to grow by 9.17% over the next 5 years. Insiders, who currently own 0.26% of the company, have reduced holdings by -10.97% over the last 3 months.

6. Nabi Biopharmaceuticals (NASDAQ:NABI): Biotechnology Industry. Price / Cash ratio of 1.52, and Price / Free Cash Flow of 3.91. The company's EPS have grown by -35.45% over the last 5 years, while analysts project EPS to grow by 15% over the next 5 years. Insiders, who currently own 1.44% of the company, have reduced holdings by -46.49% over the last 3 months.

7. Providence Service Corp. (NASDAQ:PRSC): Specialized Health Services Industry. Market cap of $169.9M. P/E ratio of 7.26, forward P/E of 8.42, and PEG ratio of 0.43. Price / Cash ratio of 3.06, and Price / Free Cash Flow of 2.69. The company's EPS have grown by 16.12% over the last 5 years, while analysts project EPS to grow by 17% over the next 5 years. Insiders, who currently own 1.56% of the company, have reduced holdings by -47.16% over the last 3 months.

8. Vanda Pharmaceuticals, Inc. (NASDAQ:VNDA): Biotechnology Industry. Market cap of $182.3M. Price / Cash ratio of 0.9, and Price / Free Cash Flow of 1.17. Analysts project EPS to grow by 30% over the next 5 years. Insiders, who currently own 2.36% of the company, have reduced holdings by -54.87% over the last 3 months.

Interactive Chart: Comparing analyst opinion on all the stocks mentioned in this article.

Disclosure: No positions