Now that Express Scripts (ESRX)'s proposed $34 billion takeover of Medco Health Solutions (MHS) appears more likely, analysts and investors are looking to the next big takeover candidate in healthcare. Several are pointing to SXC Health Solutions (SXCI). (STAY AHEAD OF THE CURVE: Follow Kapitall on Twitter)
Medco's share price has risen to within 4% of its takeover price this month, indicating that investors are increasingly convinced that the deal will go through. However the deal still awaits approval from the Federal Trade Commission.
The Express Scripts-Medco takeover, if successful, will create the largest U.S. manager of prescription drug benefits, according to Bloomberg. SXC Health Solutions' majority of sales comes from their pharmacy-benefits management unit, which could help an acquirer better compete in the industry against the new behemoth. Analysts expect SXC's sales to rise 60% over the next year.
"SXC could lure a larger rival such as UnitedHealth, the biggest U.S. health insurer by sales, which is investing in its PBM unit as the $57.6 billion company prepares to take back some business it had farmed out to Medco in recent years," said merger arbitrage analyst Will Harrington at Wall Street Access.
One interesting point to make, however, is that SXC is relatively expensive compared to its peers, which may preclude takeover offers. The company is trading at around 30 times its projected earnings for this year, which is the highest valuation out of the "12 U.S. companies involved in the supply chain for pharmaceuticals or medical equipment with market capitalizations greater than $500 million," according to data from Bloomberg. But the higher valuation may simply be due to its higher earnings growth.
Business Section: Investing Ideas
Despite its higher valuation, do you think other companies will view SXC as an attractive takeover target with (or without) the Express Scripts-Medco deal? For a closer look at M&A in the healthcare sector, we compiled a list of rumored potential takeover/leveraged buyout (LBO) targets in the healthcare sector from various sources including iStockAnalyst and CNN Money.
We then screened these names to find those that appear attractively priced relative to EPS trends. These stocks have seen higher growth in EPS than price over the last 30 days. Based on the assumption that P/E is equal to a constant k, this may indicate that these stocks have more value to price in.
Do you think these companies are attractive takeover targets?
Use this list as a starting point for your own analysis.
Interactive Chart: Use the Compar-O-Matic to compare analyst ratings for all the stocks mentioned below:
1. AMERIGROUP Corporation (AGP, Earnings, Analysts, Financials): Operates as a multi-state managed healthcare company. Takeover/LBO rumor sourced from iStockAnalyst. The EPS estimate for the company's current year increased from 3.95 to 3.99 over the last 30 days, an increase of 1.01%. This increase came during a time when the stock price changed by -8.21% (from 70.32 to 64.55 over the last 30 days).
2. GlaxoSmithKline plc (GSK, Earnings, Analysts, Financials): Engages in the discovery, development, manufacture, and marketing of pharmaceutical products, over the counter (OTC) medicines, and health-related consumer products worldwide. Takeover/LBO rumor sourced from Minyanville. The EPS estimate for the company's current year increased from 3.7 to 3.76 over the last 30 days, an increase of 1.62%. This increase came during a time when the stock price changed by 1.1% (from 44.63 to 45.12 over the last 30 days).
3. Select Medical Holdings Corporation (SEM, Earnings, Analysts, Financials): Through its subsidiary, Select Medical Corporation, operates specialty hospitals and outpatient rehabilitation clinics in the United States. Takeover/LBO rumor sourced from CNBC. The EPS estimate for the company's current year increased from 0.87 to 0.89 over the last 30 days, an increase of 2.3%. This increase came during a time when the stock price changed by -2.15% (from 8.39 to 8.21 over the last 30 days).
4. Shire plc (SHPGY, Earnings, Analysts, Financials): Engages in the research and development, manufacture, sale, and distribution of pharmaceutical products. Takeover/LBO rumor sourced from Minyanville. The EPS estimate for the company's current year increased from 6.12 to 6.15 over the last 30 days, an increase of 0.49%. This increase came during a time when the stock price changed by -3.65% (from 105.43 to 101.58 over the last 30 days).
5. Tenet Healthcare Corp. (THC, Earnings, Analysts, Financials): Operates acute care hospitals and related health care facilities. Takeover/LBO rumor sourced from Seeking Alpha. The EPS estimate for the company's current year increased from 0.49 to 0.51 over the last 30 days, an increase of 4.08%. This increase came during a time when the stock price changed by -9.17% (from 5.78 to 5.25 over the last 30 days).
(Written by Alexander Crawford. EPS data sourced from Yahoo! Finance.)
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Dig Deeper: Access Company Snapshots, Charts, Filings
- AMERIGROUP Corporation (AGP, Chart, Download SEC Filings)
- GlaxoSmithKline plc (GSK, Chart, Download SEC Filings)
- Select Medical Holdings Corporation (SEM, Chart, Download SEC Filings)
- Shire plc (SHPGY, Chart, Download SEC Filings)
- Tenet Healthcare Corp. (THC, Chart, Download SEC Filings)
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