The Analysts Are Upgrading Health Care Stocks
With the peak of Q4 earnings season just around the corner, the analyst’s activity is picking up. While healthcare activity is expected to face some near-term headwinds due to Omicron the long-term outlook is robust and garnering attention from analysts. Baxter International (NYSE:BAX) and Eli Lilly (NYSE:LLY) each received two upgrades in the first week of the new year and they all point to double-digit upside for these stocks. In our view, these stocks are both well-positioned for a market that is growing, aging, and spending more than ever on healthcare, medicine, and health-related supplies.
1. Baxter International Is A Buy
Baxter International got two shout-outs at the first of the year, one from Raymond James and the other from Keycorp. The two reiterated Overweight ratings and upped their price targets to $99 and $98 compared to the Marketbeat.com consensus of $91.91. The consensus target implies about 6% of upside for the stock while the high of $100 suggests a more robust 16%.
“Omicron, and the likelihood of deferred procedures will dominate the near-term narrative, which makes for an uncomfortable near-term set-up,” Raymond James analyst Jayson Bedford warns, predicting a conservative early guidance from (MedTech) companies for 2022. “This may be early in 2022, but our thought is that the green light starts to shine brighter in 2Q22,” he added, citing his optimism on high vaccination rates, less virulent Omicron, and improvements in hospital management.
Baxter International reports Q4 earnings on Feb. 2 and is expected to post modest sequential and YOY gains. The key in the report will be margins and earnings. The margin is expected to contract and produce earnings below the previous year, the takeaway will be whether or not the margin contraction was better or worse than expected. Shares of Baxter have been trending higher in recent weeks and look ready to move up to retest the 2020 highs near $95.
2. Eli Lilly Moves Higher On Outlook, Pipeline
Eli Lilly also received two price target increases in the first two days of the trading year. Wells Fargo and Sanford C. Bernstein raised their price targets to what amounts to a consensus target of $290. This compares with the Marketbeat.com consensus estimate of $288 which suggests about 8.7% of upside for the stock. The important takeaways here are that not only is the consensus price target moving higher but the company is picking up analysts as well. The company has picked up 6 new analysts since the spring of 2021 bringing the total of current ratings to 18.
Eli Lilly reports earnings on Feb. 3 and may surprise the analysts. The Marketbeat.com consensus is for revenue to grow 14% sequentially but a more tepid 2.6% versus last year. Last year, the company set a record so the comp is on the hard side. In our view, the risk is to the upside due to the increased use of medical facilities and momentum in key markets. Shares of Eli Lilly are pulling back from a peak now but trending strongly higher in the short, mid, and long terms.
