Leerink Partners Raises Price target on Magellan Health (MGLN) Following 3Q and Guidance
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Leerink Partners reiterated a Market Perform rating on Magellan Health Services (NASDAQ: MGLN), and raised the price target to $78.00 (from $60.00), following the company's 3Q earnings report and guidance. MGLN released 2017 revenue guidance of ~$5.8-6.1B, ahead of expectations of ~ $5.2 B. Adjusted EPS is expected to be in range $5.19 - $6.12. Guidance includes recently announced Veridicus acquisition which is expected to close in 4Q16. The company expects the acquisition to be 12c accretive to 2017 adjusted EPS.
Analyst Ana Gupte commented, "We are more positive on MGLN (MP) after a positive 3Q and solid 2017 guidance that has beat on top and bottom line and raise our PT to $78. We are raising 2016 and 2017 estimates to reflect the solid quarter and guidance. The 2017 outlook includes Veridicus, which is the recently acquired PBM with $220 MM in revenue $9 MM in segment profit. MGLN has hit its stride on operations in both Complete Care with its FL SMI (Serious Mental Illness) book beating originally set guidance of high 80s MLR that should see a continued tailwind from 2017 rate adjustments. The company is in discussions with the State of VA on its Managed Long Term Support Services (MLTSS) contract and sees the recently acquired TMG as likely to fuel further contract wins. While the 3Q PBM performance was less strong, likely from secular headwinds facing the drug supply chain, tuck-in acquisitions such as Veridicus offer accretive inorganic growth. Balance Sheet and CF remain strong and are fueling continued tuck in acquisition. MGLN is less exposed to any downside risk surrounding the Trump win and "repeal and replace" in its PBM business and Complete Care, where privatization by States will continue and may even accelerate as States face budgetary pressures post repeal of Obamacare. MGLN may also be a takeout candidate for the likes of ANTM (OP), AET (OP) and CI (OP) that are looking to build out their specialty benefits capabilities particularly if the mega deals break as that would improve capital flexibility. We raise our PT to $78 which contemplates ~14.5x our 2017E adj. EPS of $5.35."
Shares of Magellan Health Services closed at $68.90 yesterday.
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