Jefferies Makes Huge Health Care Addition to Franchise Picks Portfolio

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All the companies that we follow here at 24/7 Wall St. keep a list for their institutional and retail clients of high-conviction stock picks. These are generally the companies they not only like on a longer term basis, but those that usually have big upside to the assigned target price. Since the beginning of the year, many firms on Wall Street have tweaked their lists to account for potential changes in 2018, and one company has added some outstanding stocks we feel could have outsized upside.

In a recent research note, the analysts at Jefferies made a big move by adding a top health care company to the firm’s well-respected Franchise Picks list of stocks to Buy. Molina Healthcare Inc. (NYSE: MOH) was raised to Buy and becomes the newest member of the Franchise Picks list.

The company is one of the largest Medicaid managed care plans in the United States, administering programs in over a dozen states. The company operates through three segments: Health Plans, Molina Medicaid Solutions and Other. The Health Plans segment operates plans in 12 states. As of December 31, 2017, this segment served approximately 4.5 million members who were eligible for Medicaid, Medicare and other government-sponsored health care programs.

The Jefferies analyst is very positive on the company and noted this when the stock was added to the Franchise Picks portfolio:

Analyst Dave Windley thinks the stabilization, turnaround, and path to earnings per share growth is more visible now with new CEO Zubretsky (joined Nov ’17) laying out a very detailed game plan at the company’s late May Investor Day. Dave believes the turnaround plan is responsibly conservative and significantly value-enhancing (EPS power is ~$10 in 4-5 yrs versus his $4.56 2018 estimated figure). The biggest risk to Molina is the TX re-procurement, the state has 2 request for proposals that will be awarded close to each other in Oct 2018 and Jan 2019. 12-14% of profits come from the state, but Dave estimates that the reasonable downside is 5-6% of profits, based on Molina’s current positions, competition, and the Texas award intentions.

The Jefferies price target for the shares is $124, and the Wall Street consensus target is at $97. The stock at $102.31 just after Monday’s opening bell.

In addition, the following top energy stock are also on the Franchise Picks List, and with oil shooting higher Friday, all make good sense for investors to look at now.

Chevron

This integrated giant is a safer way for investors looking to stay or get long the energy sector, and it has big Permian Basin exposure. Chevron Corporation (NYSE: CVX) is a US-based integrated oil and gas company, with worldwide operations in exploration and production, refining and marketing, transportation and petrochemicals.

The company sports a sizable dividend and has a solid place in the sector when it comes to natural gas and liquefied natural gas. Some on Wall Street estimate that the company will have a compound annual growth rate of over 5% for the next five years.

The company’s production from the Permian Basin continues to exceed trajectory, and it provided investors with a reasonably bullish update at the March 6 investors day.

With Permian production and asset disposals targets reset, the company can raise the dividend 20% and buyback 15% of shares. Many analysts view the strategy update as appropriately conservative for one of the more oil-levered majors. The Chevron strategy through 2020 is focused on discipline, enabled by step change in capital efficiency driven by doubling Permian production.

Chevron shareholders are paid an outstanding 3.58% dividend. Jefferies has a price target of $157, and the posted consensus price target was last seen at $145.68. The shares traded early Monday at $124.30 apiece.