UBS Investment Research recently published a report entitled “US Research” on December 30, 2011. The report isn’t publicly available but we will summarize main points here. In the report, UBS analysts have listed their top stock ideas for 2012. This article discusses their picks in the Healthcare sector.
Gilead Sciences (GILD) is a biopharmaceutical company that is involved in the discovery, development, and commercialization of therapeutics. UBS has given the company a buy-rating. Gilead Sciences’ stock price is expected to increase due to a multiple expansion driven by the de-risking of the pipeline compound for Hepatitis-C. The upcoming acquisition of Pharmasset will also be favorable to the company, increasing the multiple-expansion by 2+ points. Gilead Sciences is currently trading at $42.7 per share and is expected to reach a price target of $49 per share. The company returned 12% in 2011.
UnitedHealth Group (UNH) provides healthcare services in the U.S. It has been given a buy rating by UBS as the company is in a strong position to capitalize on changes in the health insurance landscape. UnitedHealth has a high leverage in the Medicaid market and the company’s Health Services segment, which can potentially increase its earnings power and differentiates it from peers. Shares of the company are currently trading at $52.8 and are expected to reach a price target of $58, indicating a potential upside of around 10%. This is based on a target multiple of 12x the 2012 earnings per share estimate by UBS. In 2011, the company returned 42%.
Allscripts Healthcare Solutions Inc. (MDRX) provides clinical, financial, connectivity, and information solutions primarily in the U.S. The company is best positioned in the Healthcare IT sector for a strong performance in 2012, and has been given a buy rating by UBS. The recent five-year HITECH Act stimulus is expected to impact Allscripts Healthcare Solutions in a positive manner. During 2012, UBS expects the company to expand relationships and gain market share in the ambulatory HER market. Shares of the company are currently trading around $18 per share and are expected to go north of $25, indicating a potential upside of around 39% in share price. Allscripts Healthcase Solutions is currently trading at nearly a 30% discount to its peers.
CVS Caremark Corporation (CVS) operates as a pharmacy services company in the U.S. It has been given a buy rating by UBS. Due to cyclical tailwinds and near-term positive catalysts, the company is expected to see share price appreciation and an increase in earnings. The pending merger, a potential retail drug upside, and generic drug launches are expected to act as catalysts for the company. Shares of CVS Caremark are currently trading at $41.4 per share and are expected to reach a price target of $46 per share. The company returned 18.4% in 2011. Warren Buffett's Berkshire initiated a $190 million position in CVS during the third quarter.
Mettler-Toledo International (MTD) engages in the research, development, manufacture, and marketing of precision instruments and software. UBS expects the company to outperform its peers in 2012 and has given it a buy rating. The company’s strong momentum is expected to continue, with a high-end organic revenue growth. UBS expects Mettler-Toledo International to deliver an increase in earnings per share of 15%. Shares of the company are currently trading around $155 per share and are expected to reach a price target of $190, indicating a potential upside of 22.5%. Shares of the company are currently trading at a premium to the group and UBS is of the opinion that this value is justified given the company’s position in the market, above-average outlook, and strong historical trends.
Centene Corporation (CNC) is a multi-line healthcare company in the Medicaid Managed Care market sector. UBS has given the company a buy rating and it is expecting it to outperform its peers. This expected performance is on account of the new Medicaid procurements, recent results showing a 45% increase in revenue, and the maturity of new business and contracts. Shares of the company are currently trading near yearly highs at $42.3 and are expected to reach a price target of $44 per share. The company generated returns of 58.5% in 2011.
Stryker Corporation (SYK) operates as a medical technology company. It has been given a buy rating by UBS. More than 65% of the company’s sales are from the U.S. market. Due to limited disclosure by the company, UBS does not see any major catalysts. However it is of the opinion that the company’s stock is currently undervalued. Stryker Corporation’s MedSurg and Neurovascular segments are the company’s drivers for growth. The top line is expected to see a mid-single digit growth in organic sales while the bottom line is expected to see a double-digit earnings-per-share growth. Shares of the company are currently trading at $51.5 per share and are expected to reach a price target of $59, indicating an upside of 14.5% in share price. The company is currently trading at 11.7x its price-to-earnings ratio and 6.4x its enterprise value to EBITDA ratio. Steven Cohen’s SAC Capital had $33 million in Stryker at the end of September.
Endo Pharmaceuticals Holdings (ENDP) operates as a specialty healthcare solutions company. The company has been given a buy rating by UBS. According to UBS, there are three things that will act as catalysts for Endo Pharmaceuticals in the near future; a sustainable base business, breaking into the Opana ER market through its Opana franchise, and mergers and acquisitions. Shares of the company are currently trading at $33.8 and are expected to increase to $50, indicating a potential upside of 48% in share price. The company has a price-to-earnings multiple of 9x.
Perrigo (PRGO) develops, manufactures, and distributes over-the-counter and generic prescription pharmaceuticals. UBS has given the company a buy rating. Along with leveraging its strong customer network, Perrigo also has the potential to leverage tailwinds in the generic sector. With an improved product mix, UBS expects the company to expand its operating margin. Management of the company has estimated a 10%-20% increase in earnings per share. Shares of Perrigo are currently trading at $96 and are expected to reach a price target of $115. UBS has estimated a 20-21x price-to-earnings ratio for 2013. Also, the company generated returns of 56% in 2011. Ken Fisher’s Fisher Asset Management had $61 million invested in the company at the end of September.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.