Credit Suisse’s note Healthcare Distribution 2022 Outlook: Long Awaited Inflection Point Finally In Sight discusses trends & topics the analysts believe are likely to affect drug/medical distributors in 2022, according to Credit Suisse’s recent investor survey and their CY4Q preview & 2022 outlook for the industry & each company.
For Credit Suisse’s 2022 HCIT Outlook, see the note, Sentiment & Valuations Might Have Been Reset, but Underlying Themes Driving Digitization in HC Remain Intact and for e-Brokers outlook, see the note Unlikely to Get Out of the Woods any time Soon, Volatility to Continue.
Looking ahead to 2022, the recovery in patient/provider interactions, prescription volumes, and general healthcare utilization will continue to serve as a tailwind for each of the distributors. However, the emergence of Omicron and its high transmissibility could limit the degree to which the recovery may have otherwise occurred.
Other catalysts for 2022 will be more adoption of biosimilars and other specialty therapeutics, which will continue to serve as important growth and profitability levers for ABC, MCK, and CAH (in that order).
With stable balance sheet & attractive cash flow profiles, distributors will maintain attractive capital deployment flexibility, which serves as an important cushion to whatever uncertainty remains with the pandemic-although each company has its own capital deployment priorities in the near-term. Finally, despite the large Opioid settlement amount, distributors should be able to absorb the impact given the payments being spread out across 18 years, based on current assumptions.
While not all states and political subdivisions are likely to sign onto the global opioid settlement framework, a large percentage of them have already done so, which the analysts believe will attract more interest from generalists and long-only investors.
Credit Suisse analysts recently surveyed 81 institutional investor clients (52% Long-Only, 46% Hedge Funds) on various topics including outlooks on healthcare distributors for 2022. Around 40% of respondents have a bullish view on healthcare distributors in 2022, while ~54% are neutral and ~6% are bearish.
This compares with ~26% of respondents having a bullish view heading into 2021, while ~58% were neutral and ~16% were bearish. Among Long-only investors, ~28% are bullish and ~9% are bearish. Meanwhile, about ~52% of Hedge fund investors are bullish and ~3% being bearish.
These results reflect a meaningful improvement from last year. Investor respondents were most bullish on MCK, followed by CAH and ABC. Among long-only investors, ABA and CAH were the preferred names. Among Hedge fund investors, MCK was the top choice, followed by CAH.
Given the tailwinds, as analysts see the industry heading in 2022 & beyond, analysts are raising their TP multiple for all three drug distributors. The analysts now value ABC at 12x, MCK at 11x, and CAH at 8x (adjusted for NPV of Opioid settlement) which was the analysts 2023 EBITDA estimate. This yields TPs for ABC of $180 (36% upside), MCK of $333 (35% upside) and CAH of $62 (16% upside).
The analysts believe MCK’s recent strategic moves the position for the company well for future growth opportunities. As a result, the analysts are upgrading their rating on MCK to Outperform from Neutral. The analysts made no changes to their rating, TP, or multiple for OMI.
For more information on the notes, to ask questions, provide feedback, or news, email Jailendra Singh at jailendra.singh@credit-suisse.com or call 212-325-8121.