Nicholas Jansen, Analyst with Raymond James & Associates, says WebMD Health Corp. (WBMD) is one of a few companies that are benefitting from the re-emergence of the pharmaceutical drug pipeline.
“With all the new drugs that are being launched, there are all kinds of targeted therapeutics going after smaller disease classes,” Jansen says. “And these pharmaceutical manufacturers need to market the product to the consumer and to the doctor, so they are utilizing WebMD’s websites, both webmd.com for consumers and medscape.com for physicians, to spend money on for advertising purposes.”
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Jansen has a “strong buy” rating on WebMD, which he says is largely a function of the company’s revenue acceleration. He says 60% of WebMD’s revenue comes from the biopharma and medical device sector advertising on its sites. He says that sector grew 8% in 2014 and appears to be growing about 12% to 15% in 2015.
“And then you layer on the fact that this model is highly scalable, so their margins have hundreds of basis points for improvement, and the fact that they have a sizable NOL, which they are effectively generating stronger free cash flow than they are reporting as GAAP net income, which enables them to continue to chip away at the equity in terms of buying back stock,” Jansen says. “Yet given the growth profile, forecasted at mid-teens EBITDA growth in both 2015 and 2016, it trades at around 11 times or so EBITDA on 2015 numbers. I think the risk/reward is pretty attractive from an improving fundamentals basis.”
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