WebMD Shares Downgraded To Market Perform By William Blair

WebMD Health Corp.

shares were downgraded to a rating of Market Perform by William Blair analysts, Adam Klauber and Katelyn Young. Their contention is that the risk/reward appears to be more balanced at the current valuation. The brokerage believes that some of the factors like strength in the drug pipeline and accelerated investment in digital advertising channels were significantly underappreciated by the market about one year back. However, the brokerage thinks now, "We now believe that emerging risk around drug pricing headlines, as well as stock appreciation, has brought more balance to the risk/reward dynamic…. Still, we remain positive on the company's long-term outlook and its strong competitive positioning as a premier digital channel at a time when targeted marketing continues to be increasingly important." William Blair reduced its operating EPS estimations for WebMD to $2.26 from $2.28 for the current year and for the next year to $2.46 from $2.52. Klauber and Young cited the recent issuance of convertible debt as the reason for adjusting its forward diluted shares, as well as, interest cost estimations. The brokerage believes that new molecular entity approvals, and compounds in various stages of approval, have remained relatively high in the first half of 2016. The large volume in newly approved drugs, coupled with the niche nature of these newer drugs, has continued to breed strong demand for targeted marketing efforts. The analysts expect the trend to continue as a strong tailwind, especially as the pharmaceutical industry continued to slowly allocate more promotional dollars toward digital channels. As far as the risk factors, the drug pricing topic will continue to remain as a topic in the upcoming election with both lead Democratic candidates have proposed policies to make drug pricing more affordable, likely to be at the cost of the industry. Shares of the company traded 2.42 percent down on Friday.