Analysts at Goldman Sachs are out with four new Buy recommendations on companies in the oil, biotech and health care businesses. The researchers see reasons to like all four stocks, primarily because of what they have to offer compared to competitors.

The Goldman Sachs analysts have upgraded their ratings on two of the stocks and boosted their 12-month price targets on those stocks. The firm also initiated coverage on two firms that came public earlier this month. Both are players in the health care industry.
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Ovintiv

Ovintiv Inc. (NYSE: OVV) may sound like it ought to be a biotech firm, but the company is, in fact, in the oil and natural gas business. Until late January of last year, Ovintiv was known as EnCana, a Calgary-based oil and gas exploration and production company. The name change brought with it a move to Denver.

Since the name change, the shares dropped about 85% when the COVID-19 pandemic struck, but they finished that 15-month period with a gain of 40%. Goldman analyst Neil Mehta and his team give three reasons for upgrading their rating from Hold to Buy and boosting the price target from $26.75 to $29.00 per share.

First is cost reduction “with disciplined spending which focuses on free cash flow while keeping production largely flat.”

Next is balance sheet improvement through improved free cash flow (FCF) leading to net debt reduction from the current level of $6.9 billion to $2.9 billion in 2022.

And third is compelling valuation because shares trade at 29% of 2021 FCF yield compared with peers currently trading at 17% at a Brent crude price of around $73 a barrel. The comparison improves in both 2022 and 2023.

Ovintiv traded up about 1.2% in early trading Monday, at around $24.50 in a 52-week range of $2.39 to $28.69. The stock’s consensus price target is $25.30, and Ovintiv pays an annual dividend of $0.38 (yield of 1.57%). The analyst projects a 2021 total return of 21% in 2021, compared to a total return of 13% for a peer group, including names like EOG Resources, Pioneer Natural Resources, Devon and Diamondback.

Harmony Biosciences

Harmony Biosciences Holdings Inc. (NASDAQ: HRMY) is a biotech firm with a single product, Wakix, a treatment for narcolepsy and catalepsy. Goldman Sachs initiated coverage of the company last September with a Neutral rating and a $43 price target. The price target turned out to be too optimistic, given the COVID-19 pandemic, which Harmony called out on its own.

What’s changed is Harmony’s fourth-quarter results, announced last week. Sales beat both Goldman’s and consensus estimates with 23% sequential growth and Goldman Sachs analysts Graig Suvannavejh and John McNeil write that “we are incrementally positive following the company’s positive comments with respect to the near-term trajectory for Wakix, especially given their view of an improved COVID-19 outlook in the US for 2021.” The company has also begun two Phase 2 trials to expand approved uses for Wakix.

Goldman Sachs has raised its rating on the stock to Buy, leaving the $43 price target unchanged. The analysts note that shares currently trade down about 38% since last September and are flirting with all-time lows. The price target implies an upside potential of 56% from last Friday’s closing price of $27.56.

Shares traded up 4.2% Monday morning to $28.72, in a 52-week range of $26.51 to $52.74 and with a consensus price target of $51.33. Harmony’s market cap is $1.63 billion, and the company does not pay a dividend.

Oscar Health Inc. (NYSE: OSCR) came public earlier this month at $36 a share and had lost more than $10 as of Friday’s closing bell. Goldman Sachs analyst Robert Jones and his team have initiated coverage of this stock with a Buy rating and a 12-month price target of $44 a share.
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The company offers small-group and Medicare Advantage markets, an area where Goldman Sachs sees “meaningful upside optionality in currently nascent opportunities.” The analysts also believe that the competitive risks in the individual and family plan market and Oscar Health’s multi-year timeline to profitability are “appropriately accounted for in the current trading multiple” of 15.5 times enterprise value/gross profit in 2021 and 10.2 times for 2022. Averages for a competitive group are 28.6 times for 2021 and 19.9 times for 2022.

Oscar Health also has an opportunity to license its technology platform to other industry players. One provider, Health First, agreed before Oscar’s IPO to pay a per-member, per-month fee to use the technology and consumer platform. Goldman’s analysts note specifically the “broader opportunity from the tech platform revenue channel, including a health plan [total available market] of $21bn – $25bn. While we view these opportunities as quite nascent (and somewhat unproven), even modest penetration into this opportunity could be meaningfully incremental to the company’s growth algorithm.”

Investors hadn’t taken Goldman’s upgrade to heart Monday. In late morning trading, Oscar Health’s stock was down about 1% at $25.43, in a post-IPO range of $22.56 to $37.00. The mean price target on the stock is $36.50, with four of five brokerages out Monday with Buy ratings.

InnovAge

InnovAge Holding Corp. (NASDAQ: INNV) also came public in early March and shares closed Friday at $24.35, just 1.5% above the IPO price. The analyst has initiated coverage on the stock with a Buy rating and a 12-month price target of $32.

The company provides patient care through the Program of All-Inclusive Care for the Elderly (PACE) funded by the Centers for Medicare & Medicaid Services. PACE provides comprehensive medical and social services to certain frail, elderly people (participants) still living in the community. Most of the participants are dually eligible for both Medicare and Medicaid.

Goldman Sachs estimates a total available market of some $200 billion for some 2.2 million PACE-eligible seniors. The program currently supports about 55,000 patients, or about 3% market penetration. Unlike many programs designed to help lower-income Americans, PACE has bipartisan support in Congress—at least for now.

According to Goldman Sachs analyst Jamie Perse and his team, InnovAge is roughly twice as large as its nearest competitor in the “highly fragmented PACE provider landscape.” Goldman believes that “the company is well positioned to (1) grow above peers in existing markets, (2) drive market expansion in new regions, and (3) potentially acquire smaller players.” Top-line growth has reached roughly 25% since the company converted to a for-profit model, and Goldman Sachs forecasts a 20% sales growth opportunity over the next five years.

The stock’s post-IPO range is $20.84 to $27.18, and shares traded up about 0.8% Monday morning at $24.54. As with Oscar Health, four of five reports released today rate the stock a Buy, with a mean price target of $29 a share.

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