ThinkEquity has outlined its top healthcare stock picks for 2011. The stocks include: BioScrip, Express Scripts, MedAssets, Omnicell and SXC Health Solutions.
* BioScrip (NASDAQ: BIOS, $4.99, Buy, Price Target: 6) ThinkEquity said This is our sleeper pick, one that we think could outpace all others in terms of percentage upside in 2011. Given the unpredictability of recent financial results, this call is certainly not without risk, it said. Notwithstanding two consecutive disappointing quarters, and a longer history of generally erratic and unpredictable financial results, the brokerage said the time is now to revisit the Bioscrip story.
Sentiment appears to be at trough levels while a new management team plans to introduce much-needed operational discipline that we regard as long overdue, ThinkEquity said. While the result is likely to be a smaller company in terms of revenue, margin gains could be dramatic as unprofitable contracts are rationalized.
* Express Scripts (NASDAQ: ESRX, $58.02, Buy, Price Target: 68) The brokerage said the next several years promise to be a boon for pharmacy benefit management or PBMs with traditional pricing models, and it expects the upcoming wave of generic drug introductions to provide a nice boost to earnings growth in 2012 and beyond.
ThinkEquity said Express Scripts also has an opportunity to improve operating metrics within the acquired NextRx book of business. Also, NextRx is a ten year contract which, together with the Department of Defense (5 years, plus two one-year options), yield below-average renewal risk for the next several years. The brokerage said this is a critical differentiator for Express Scripts, as it at least partially insulates the company from changes in industry pricing dynamics.
* MedAssets (NASDAQ: MDAS, $19.88, Buy, Price Target: 24) A conservative 2011 outlook and potential revenue synergies from the Broadlane acquisition set the stage for more consistent financial results in 2011, ThinkEquity said. MedAssets' initial 2011 guidance calls for revenue growth of 56-58%, reflecting a full year of Broadlane, which closed in November. On an acquisition-adjusted basis, this revenue guidance translates to growth of 10-12%, which we regard as achievable, if not conservative, ThinkEquity said.
Fundamental tailwinds continue to strengthen, and valuation seems attractive relative to HCIT comps. We are willing to look past recent disappointments to see what we believe is the real longer-term opportunity here, the brokerage said.
* Omnicell (NASDAQ: OMCL, $13.88, Buy, Price Target: 16) Omnicell continues to gain share from larger competitors, something that is seemingly reflected in the leading indicators, most notably year-end backlog, the brokerage said. ThinkEquity said it expects about 4 percent revenue growth in 2010, the company's backlog will grow around 8 percent to 9 percent, translating into accelerating revenue growth in 2011, with opportunity for continued operating margin expansion.
ThinkEquity said the company is well positioned as hospital CapEx trends gradually improve. Omnicell possesses an outsized cash balance of $180 million, or nearly $5.50/share that the brokerage would anticipate management using toward smaller acquisitions that expand the company's solution set or add new hospital customers. We believe that this is a good company with an important product line and that the most challenging days are in the past, ThinkEquity said.
* SXC Health Solutions (NASDAQ: SXCI, $44.97, Buy, Price Target: 50) ThinkEquity said it expects M&A to complement strong organic growth trends. The recent Medfusion acquisition bolsters the company's specialty pharmacy business, thus creating further separation from middle-market PBM peers, it said. The brokerage forecasts cash earnings per share of $1.61 for 2011 from $1.46 previously and $1.98 from $1.80 for 2012.
The brokerage said additional accretive acquisitions will drive earnings estimates, and therefore the share price, meaningfully higher over the next 12 months. Also, with a 50/50 split between traditionally priced and transparent business, SXC should benefit nicely from upcoming generic drug introductions, ThinkEquity said.