Analysts at Goldman Sachs are out with four new Buy recommendations on companies in the oil, biotech and health care businesses. The researchers see reasons to like all four stocks, primarily because of what they have to offer compared to competitors.
The Goldman Sachs analysts have upgraded their ratings on two of the stocks and boosted their 12-month price targets on those stocks. The firm also initiated coverage on two firms that came public earlier this month. Both are players in the health care industry.
Ovintiv Inc. (NYSE: OVV) may sound like it ought to be a biotech firm, but the company is, in fact, in the oil and natural gas business. Until late January of last year, Ovintiv was known as EnCana, a Calgary-based oil and gas exploration and production company. The name change brought with it a move to Denver.
Since the name change, the shares dropped about 85% when the COVID-19 pandemic struck, but they finished that 15-month period with a gain of 40%. Goldman analyst Neil Mehta and his team give three reasons for upgrading their rating from Hold to Buy and boosting the price target from $26.75 to $29.00 per share.
First is cost reduction “with disciplined spending which focuses on free cash flow while keeping production largely flat.”
Next is balance sheet improvement through improved free cash flow (FCF) leading to net debt reduction from the current level of $6.9 billion to $2.9 billion in 2022.
And third is compelling valuation because shares trade at 29% of 2021 FCF yield compared with peers currently trading at 17% at a Brent crude price of around $73 a barrel. The comparison improves in both 2022 and 2023.
Ovintiv traded up about 1.2% in early trading Monday, at around $24.50 in a 52-week range of $2.39 to $28.69. The stock’s consensus price target is $25.30, and Ovintiv pays an annual dividend of $0.38 (yield of 1.57%). The analyst projects a 2021 total return of 21% in 2021, compared to a total return of 13% for a peer group, including names like EOG Resources, Pioneer Natural Resources, Devon and Diamondback.
Harmony Biosciences Holdings Inc. (NASDAQ: HRMY) is a biotech firm with a single product, Wakix, a treatment for narcolepsy and catalepsy. Goldman Sachs initiated coverage of the company last September with a Neutral rating and a $43 price target. The price target turned out to be too optimistic, given the COVID-19 pandemic, which Harmony called out on its own.
What’s changed is Harmony’s fourth-quarter results, announced last week. Sales beat both Goldman’s and consensus estimates with 23% sequential growth and Goldman Sachs analysts Graig Suvannavejh and John McNeil write that “we are incrementally positive following the company’s positive comments with respect to the near-term trajectory for Wakix, especially given their view of an improved COVID-19 outlook in the US for 2021.” The company has also begun two Phase 2 trials to expand approved uses for Wakix.
Goldman Sachs has raised its rating on the stock to Buy, leaving the $43 price target unchanged. The analysts note that shares currently trade down about 38% since last September and are flirting with all-time lows. The price target implies an upside potential of 56% from last Friday’s closing price of $27.56.
Shares traded up 4.2% Monday morning to $28.72, in a 52-week range of $26.51 to $52.74 and with a consensus price target of $51.33. Harmony’s market cap is $1.63 billion, and the company does not pay a dividend.
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