6 Large-Cap Healthcare Stocks Undervalued By Levered Free Cash Flows

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Includes: ANTM, AZN, CI, HUM, PFE, UNH
by: Kapitall

One way to search for potentially undervalued firms is by using the ratio levered free cash flow/enterprise value. Companies with high ratios may be undervalued.

Levered free cash flow is the free cash flow after deducting interest payments on outstanding debt. Enterprise value is the sum of the firm’s value from all ownership sources: market cap, outstanding debt, and preferred shares. From this value we subtract cash holdings because, in the event of a takeover, that cash would be used towards the takeover price.

We used this ratio to screen for potentially undervalued stocks among the universe of stocks from the healthcare sector with large market caps.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.‬


We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click here.



Use this list as a starting-off point for your own analysis.

List sorted by levered FCF/enterprise value.

1. CIGNA Corporation (NYSE:CI): Operates as a health service organization. Market cap of $11.34B. Levered free cash flow/enterprise value at 19.54% (levered free cash flow at $2.65B and enterprise value at $13.56B). Might be undervalued at current levels, with a PEG ratio at 0.68, and P/FCF ratio at 9.59. The stock is currently stuck in a downtrend, trading 7.39% below its SMA20, 9.57% below its SMA50, and 5.98% below its SMA200. It's been a rough couple of days for the stock, losing 9.94% over the last week.

2. WellPoint Inc. (WLP):
Operates as a health benefits company in the United States. Market cap of $22.95B. Levered free cash flow/enterprise value at 12.05% (levered free cash flow at $1.73B and enterprise value at $14.36B). Might be undervalued at current levels, with a PEG ratio at 0.82, and P/FCF ratio at 8.34. It's been a rough couple of days for the stock, losing 5.52% over the last week.

3. AstraZeneca PLC (NYSE:AZN):
Develops, and commercializes prescription medicines for cardiovascular, gastrointestinal, infection, neuroscience, oncology, and respiratory and inflammation diseases worldwide. Market cap of $57.01B. Levered free cash flow/enterprise value at 11.80% (levered free cash flow at $7.14B and enterprise value at $60.51B). Offers a good dividend, and appears to have good liquidity to back it up--dividend yield at 6.33%, current ratio at 1.47, and quick ratio at 1.35. The stock has lost 12.75% over the last year.

4. Pfizer Inc. (NYSE:PFE): Offers prescription medicines for humans and animals worldwide. Market cap of $136.46B. Levered free cash flow/enterprise value at 11.45% (levered free cash flow at $18.16B and enterprise value at $158.56B). Offers a good dividend, and appears to have good liquidity to back it up--dividend yield at 4.57%, current ratio at 1.98, and quick ratio at 1.7. It's been a rough couple of days for the stock, losing 5.41% over the last week.

5. Unitedhealth Group, Inc. (NYSE:UNH):
Provides healthcare services in the United States. Market cap of $50.68B. Levered free cash flow/enterprise value at 10.87% (levered free cash flow at $5.71B and enterprise value at $52.51B). Might be undervalued at current levels, with a PEG ratio at 0.9, and P/FCF ratio at 9.88. It's been a rough couple of days for the stock, losing 6.83% over the last week.

6. Humana Inc. (NYSE:HUM):
Offers various health and supplemental benefit plans in the United States. Market cap of $12.72B. Levered free cash flow/enterprise value at 10.11% (levered free cash flow at $562.13M and enterprise value at $5.56B). The stock has gained 53.06% over the last year.

*Levered free cash flow and enterprise value data sourced from Yahoo! Finance, all other data sourced from Finviz.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.