This has been touted as a potential takeover target, as it may be a very solid fit for a big medical devices player. Haemonetics Corp. (NYSE: HAE) provides products for processing, handling and analysis of blood.
The company offers plasma collection and storage products, including PCS brand plasma collection equipment and disposables, plasma collection containers and intravenous solutions, as well as information technology platforms for plasma customers to manage their donors, operations and supply chain.
Jefferies has been positive on this company for years and said this:
We continue to have conviction in our bull thesis for the company despite COVID-19 and recessionary headwinds due to: 1) immunoglobulin (Ig) demand in elasticity; 2) plasma counter-cyclicality relative to unemployment; and 3) NexSys upside potential. Although COVID has pressured patient visits to infusion clinics for administration of IV therapy, the underlying illnesses being treated are all chronic conditions. The impact to plasma collections due to social distancing has only worked to further enhance the value proposition behind NexSys, which is also the only solution on the market that is proven to increase yields with each donation.
The stunning $165 Jefferies price target compares with a $137 consensus target. The stock was last seen trading at $98.67.
This may be a great play for more speculative accounts. Horizon Therapeutics PLC (NASDAQ: HZNP) focuses on researching, developing and commercializing medicines that address unmet treatment needs for rare and rheumatic diseases in the United States and internationally.
The company’s orphan and rheumatology marketed medicines include Krystexxa, a medicine for the treatment of uncontrolled gout; Ravicti for use as a nitrogen-binding agent for chronic management of adult and pediatric patients; Procysbi for nephropathic cystinosis, a rare and life-threatening metabolic disorder; Actimmune for chronic granulomatous disease; Rayos for the treatment of multiple conditions, including rheumatoid arthritis; Buphenyl tablets for oral administration and Buphenyl powder for oral, nasogastric or gastrostomy tube administration; and Quinsair, a formulation of the antibiotic drug levofloxacin for the management of chronic pulmonary infections due to pseudomonas aeruginosa in adult patients with cystic fibrosis.
Jefferies noted this:
The company’s two lead biologic drugs have no current competition, are long duration assets and have combined peak sales potential of $2-3B. Refractory gout drug Krystexxa is annualizing at $400M+ and growing 25%+ Y/Y and we forecast peak potential sales of $1B+. Just launched thyroid eye disease drug Tepezza has peak sales potential of $1 billion+ and may already be annualizing at $250M + after just four months on the market. We expect 20%+ annual growth over the next 3-4 years irrespective of the macro-economy.
The Jefferies price objective is $55. The consensus target is $52.70, and shares ended Tuesday trading at $48.16 apiece.
This large-cap medical devices play may be better suited for more conservative growth accounts. Zimmer Biomet Holdings Inc. (NYSE: ZBH) designs, manufactures and markets musculoskeletal health care products and solutions globally.
The company provides orthopedic reconstructive products, such as knee and hip replacement products; SET products, including surgical, sports medicine, biologics, foot and ankle, extremities and trauma products; spine products, comprising medical devices and surgical instruments; and face and skull reconstruction products; as well as products that fixate and stabilize the bones of the chest to facilitate healing or reconstruction after open heart surgery or trauma, or for deformities of the chest.
Zimmer Biomet also offers dental products, including dental reconstructive implants and dental prosthetic and regenerative products, and bone cement and office-based technology products. The company’s products and solutions are used to treat patients suffering from disorders of, or injuries to, bones, joints or supporting soft tissues.
Jefferies likes the value at current levels:
Zimmer Biomet has underperformed all other large cap device names through COVID despite a number of data points suggesting a recovery in orthopedics is occurring at a good pace. Stock is also the cheapest in the group: 17 times 2021 consensus versus 21.5 for large cap med-tech peers. Beyond the COVID recovery, new products, including robotics, and general improvements in manufacturing and other aspects of the business are expected to push growth higher on an underlying basis.
Shareholders receive a 0.72% dividend. Jefferies has set a $137 price target. The consensus target is $137.58, and Zimmer Biomet stock closed Tuesday’s trading at $134.14.
These five high-conviction health care ideas from Jefferies make sense for accounts looking to gain exposure to a sector that should continue to do well the rest of 2020 and for years to come, given the aging population both here and around the world. That said, it’s clear the market is overbought, and with the quarter ending and portfolio managers looking to put some gains on the book, it makes sense to buy partial position now.
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