3 Key Questions For Quintiles Transnational Investors Ahead Of M&A

UBS finds "compelling risk/reward" for Quintiles Transnational Holdings Inc Q following its announcement of an all-stock merger agreement with IMS Health Holdings Inc IMS to form a new entity named Quintiles IMS Holdings, Inc.

UBS said the mixed reaction to the deal stems from the fact that markets think either the core businesses are going to falter, the businesses are actually less valuable together or both.

Must-Answer Questions

Analyst Jonathan Groberg, who has a Buy rating on the stock, put out the following three key questions for investors to answer sequentially over the next 12–24 months:

1. "Does the Q/IMS deal portend near-term troubles ahead in the core business?"
2. "Are Q/IMS actually worse-off together than they would be separate?"
3. "Does the combination make the companies a stronger bio-pharma partner and create real competitive advantages?"

The analyst's Buy rating is based on the thesis that the merger will have significant scale in a consolidating industry and investors are under valuing the near-term strength in Quintiles's business and thinks "at a minimum, the combination with IMS is business-neutral."

"We think Q/IMS could, if properly executed, become a unique pharma partner with a significant competitive advantage," Groberg noted.

Groberg, who has a $78 price target on the stock, expects earnings of $3.79 a share for 2016 and $4.20 a share for 2017. Both estimates come in a penny above consensus estimates of $3.78 and $4.19, respectively.

At the time of writing, shares of Quintiles rose 1.19 percent to $62.05 and IMS gained 1.31 percent to $24.03.