Barclays (BCS) has published its equity outlook for 2012. The report is dated December 13th and written by Stuart Linde and his equity research team. Their outlook on the healthcare industry is positive and they recommend an above benchmark exposure. However, they have repeatedly mentioned a defensive sector posturing which reflects a cautious 1H12 outlook. Here are their top healthcare stock picks for 2012:
Aetna Inc. (AET) is the third largest managed care organization based on membership and market capitalization (at $15.11 Billion). AET is currently priced at $40.15 per share but Barclays have projected a target share price of $54.00 per share. Barclays believe that AET has improved their business by making sound strategic acquisitions and through organic growth in their government-based segments. AET trades at a P/E multiple of 8.2x which is at a 7% discount to its national peers, and a 30% discount to the S&P 500. Barclays believes that AET should have a P/E multiple closer to 11x.
Agilent Technologies (A) is a leader in the measurement tools sector with a market cap of $12.73 Billion. Agilent’s current price per share is $33.45 whereas Barclay’s estimated target price per share is at $48.00. Barclays believes that Agilent is going to show a meaningful earnings growth mostly from their emerging markets revenues (already 39% in Asia) in 2012 and with increased margins in their Life Science and Chemical Analysis products.
Bristol-Myers Squibb (BMY) is global biopharmaceutical company with a current market cap of $56.82 Billion. BMY’s current price per share is $33.31 and Barclays expects this share price to stand at $34.00. With the year-to-date approvals of Yervoy, Kombiglyze, Nulojix, and Orencia subcutaneous, the company’s financial outlook has improved. Yervoy alone is expected to generate $1.6 Billion sales worldwide. Therefore, Barclays has rated the stock as overweight.
Covidien Plc (COV), a global leader in healthcare products (medical technology space), has a market cap of $21.57 Billion. COV’s current share price of $43.77 is expected to swell to a target share price of $63.00, according to Barclays. Growth trends in pharma and medical supplies are now stable which should allow COV to benefit from its recent and future acquisitions from sale synergies. Barclays believes COV is in an attractive market with growing margins and exciting product launches in medical supplies. They have rated this stock as overweight with a potential upside of 45%.
Gen-Probe Inc. (GPRO) is a molecular diagnostics leader with a market cap of $2.81 Billion. The current share price is $56.25, however Barclays estimated target share prices is $67.00. Its above-peer organic revenue and EPS growth are set to accelerate as the company gains critical mass with new product introductions. Barclays is particularly excited about the FDA-approved APTIMA HPV assay and PANTHER which are both key to posting double-digit revenue growth..
Laboratory Corp. of America (LH) is a leader in medical lab tests and services with a market cap of $8.44 Billion. The company’s current share price is $81.53 and Barclays’ projected target price per share is $115.00. Barclays strongly believes that LH will continue to benefit from organic volume growth, market share gains, favorable mix shift, stable pricing, and acquisitions. Historically, the large clinical laboratory companies (including LH) have traded at 11-19x forward EPS. LH is trading at 11.5x which is at the lower end of the spectrum thereby giving it plenty of room to increase.
McKesson Corp. (MCK) is a leader in the healthcare distribution and technology space with a market cap of $18.84 Billion. MCK’s current share price is $76.91 and Barclays estimated target price per share is $104.00. Barclays believes that MCK operates in an environment with an improving drug product mix, an expanded list of sourcing programs, and the US Oncology addition driving healthy double-digit profit growth. MCK trades at a P/E Multiple of 10.1x having a 10-year average of 13.9x. It is also trading at a discount to its industry average of 11.0x.