IMS Health Holdings, Inc.: Initiation of Research Coverage

Wednesday, May 14, 2014

William Blair & Company initiated research coverage of IMS Health Holdings, Inc. (IMS $25.21) with an Outperform rating and Established Growth company profile. The company is the world’s leading provider of pharmaceutical sales and prescription data.

Analyst John Kreger estimated the company would generate adjusted earnings per share of $1.32 in 2014, $1.58 in 2015, and $1.77 in 2016.

“We believe IMS Health will be an attractive, defensive growth stock within healthcare,” Kreger said. “As the dominant data provider to the biopharmaceutical industry, IMS’s information services business is entrenched and will be difficult to challenge. We therefore believe this core business will be a high-return, stable-cash-flow annuity. In addition, as the industry embraces outsourcing, IMS’s addressable market increases from roughly $5 billion to $50 billion to include functions historically managed in-house, in our view. Further, the industry is trying to reinvigorate growth, setting the stage for less generic erosion, more new product launches, and therefore more spending growth. Lastly, IMS is linking core prescription data to medical claims data and electronic medical records. We believe IMS can increasingly provide real-world evidence about how products are used after approval and the effect on outcomes and costs, which will be valuable to manufacturers trying to justify reimbursement and to payers and providers seeking to better understand how to spend their limited resources.”

Kreger concluded, “We believe more outsourcing, a broader product and service offering by IMS, and improved execution should allow IMS to generate organic revenue growth in the midsingle digits. Considering the business model is tilted toward a fixed cost database, we believe IMS can translate this midsingle-digit organic revenue growth into high-single-digit EBITDA growth, and about 10% EPS growth longer term with the benefit of modest capital deployment. We view IMS as an excellent defensive vehicle to participate in the biopharmaceutical industry’s efforts to become more efficient in bringing novel drugs to market—a trend we believe has 5-10 years left to play out.”

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