A Discussion On WebMD's Buyout Likelihood

While presenting the bull and bear cases for WebMD Health Corp. WBMD, William Blair’s Adam Klauber said in a report that there is upside to the stock on sale and downside on increasing expirations. He maintains a Market Perform rating on the company.

Valuation Hinges On Sale

“WebMD’s valuation hinges on the possibility of a sale,” Klauber wrote. In the event of a sale of the company, the takeout premium is likely to be 15–35 percent. However, if a deal does not go through, the shares would plummet, maybe as much as 30 percent.

Bull View

“A review of the buyer landscape and historical deals suggests that a corporate buyer could pay around $60 to $71 for an acquisition,” the analyst mentioned. He added that a private equity buyer could pay up to $74 per share.

Bear View

In case WebMD is not sold, it would be faced with a declining earnings outlook. The company recently reported soft guidance for 2017, and “macro factors suggest that challenges may not be temporary to this year,” Klauber pointed out.

While several drugs are losing patent exclusivity over the next several years, WebMD is facing contracting market share and elevated political risk, especially given its over-dependence on biopharma revenues, the analyst stated.

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