Halyard Health Has 34% Upside Potential, KeyBanc Says In Upgrade

Following investor meetings with Halyard Health Inc HYH CEO Joe Woody, KeyBanc Capital Markets came away with a bullish stance on the medical technology company. 

The Analyst

Analyst Matthew Mishan upgraded shares of Halyard Health from Sector Weight from Overweight with a $61 price target, suggesting 34-percent upside potential.

The Thesis

Halyard Health sold its surgical and infection prevention division for $710 million in November, and the key drivers of earnings acceleration and valuation re-rating for the company could become apparent soon, Mishan said in a Thursday note. 

Investors could gain confidence in a long-term shift in growth expectations from a mid-single digit range to mid-to-high single digits, the analyst said. An Investor Day is planned in June and is likely to highlight large, multibillion-dollar addressable markets around pain management, he said. 

The company's pain franchise, which accounts for more than one-third of sales, is likely to benefit from the focus on potential opioid legislation scheduled to be taken up by Congress this summer, Mishan said. 

KeyBanc expressed confidence in the company's ability to cover stranded costs and drive accelerated earnings per share growth with restructuring and M&A.

KeyBanc's 2020 earnings per share estimates range from the base to bull case is $2.27-$2.65, doubling its pro forma estimates of $1.07-$1.32.

"We believe its emerging profile of recurring revenue, potential above-market growth, high gross margins [of greater than 60 percent] and accelerated multiyear EPS growth support a higher valuation," Mishan said. 

The Price Action

Halyard Health shares have gained about 19 percent over the past year.

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