Technology

Merrill Lynch Sees 3 Top Tech Winners Changing Health Care

Jon C. Ogg

Published: April 12, 2016 10:50 am

Last Updated: January 13, 2020 10:52 am

Before the midpoint of each month, Merrill Lynch issues its well-followed RIC Report. This monthly report contains annual and long-term forecasts and other key trends seen by the firm’s top strategists. One such key review was the intersection where technology is changing how health care is being handled.

Merrill Lynch’s Wamsi Mohan and Nat Schindler commented on the trends shaping health care. The first consideration is that the Affordable Care Act is helping to push electronic health records. This meets the Internet of Things to allow individuals to track much of their own health without frequent doctor visits.

Three companies were highlighted by Merrill Lynch in the convergence of technology and health care. IBM was featured for Watson, Apple was featured (and not only for the Apple Watch), as was Fitbit. Merrill Lynch’s RIC Report for April 2016 said:

Some implications include predicting who is at risk of disease, assigning symptoms to disease, determining correlations between behavior and wellness, determining cures, enhancing patient/doctor communication, and allowing for more seamless and efficient care. With health care data expected to double in the next two years, the ability to leverage the available data to drive insights is pivotal, and several big tech companies are positioning themselves to do just that.

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International Business Machines Corp. (NYSE: IBM) already has seen its shares bounce handily in 2016. Merrill Lynch sees IBM’s Watson as building the technology to take the massive amount of data available across many sources to run analytics and drive insights.

A partnership with Apple is helping to build a comprehensive patient profile to allow individuals, institutions and medical providers to employ specific and sensitive comprehensive data to derive insights to enhance health.

Merrill Lynch said that Watson can aggregate data on existing patents; chemical properties and structures; genetic, metabolic and proteomic information; and research on over 7 million diseases. It can also mine data to identify patterns more easily than the scientific community.

Unlike the other two stocks featured in health care and IT, Merrill Lynch rates IBM only with a Neutral rating rather than a Buy rating. The firm previously had a $135 price objective for IBM, but in late-March that target was raised to $155.

IBM’s consensus analyst target was last seen at $136.32, and its 52-week trading range is $116.90 to $176.30. IBM’s market cap is $143.5 billion.

Apple

Of course Apple Inc. (NASDAQ: AAPL) has the eponymous smartwatch, but Merrill Lynch highlighted other aspects of Apple as being on the cusp of playing a larger role in the health care industry. This is for establishing stringent privacy controls and to be a player in the mass aggregation of health-related data.

Merrill Lynch showed that Apple has the Apple Watch, iPhone accessories as sensory input devices for its Health App, alongside HealthKit and ResearchKit, to facilitate storage and large scale analysis of medical research data.
The analysts feel that the Apple Watch is an important component of Apple’s attempted penetration into the health care industry, as an enabler of medical data consumption and analysis.

As recently noted, Apple has seen multiple analysts making key calls. Apple saw its estimates and target cut at BTIG on April 6, based on longer upgrade cycles and a more conservative outlook, with a target price cut to $130 from $141 and with a cut of 10 million iPhone units out of its 2016 and 2017 estimates. The firm noted that revenue targets were trimmed for the Apple Watch after recent price cuts, which should not be offset by higher volumes. A rival call was made on April 6 after Apple was started as Strong Buy at Needham with price target of $150. Credit Suisse also added Apple to its Focus List and raised its target price to $150 from $140.

Apple is rated at Buy at Merrill Lynch. It has a $109 current share price, and the firm’s price objective of $130 compares to a consensus analyst target of $133.92 and a 52-week range of $92.00 to $134.54.

Fitbit

Fitbit Inc. (NYSE: FIT) was touted as an industry leader in wearable fitness trackers. Its applications have social features and analytics to help users become more active, get more exercise, sleep better and eat healthier to increase their overall health.

Merrill Lynch did note that Fitbit has primarily been a device company, but its efforts to keep building a corporate wellness program now has over 1,000 corporate customers — for a total market that could reach $10 billion by 2020.

Fitbit is said to provide a solution that engages employees to be more active, measures health improvements and ultimately helps minimize future insurance costs for employers.

Fitbit has also partnered with two of the largest U.S. health insurers for two early stage programs. One program is focused on diabetes management and another is focused on weight management.

Fitbit is rated as a Buy at Merrill Lynch, with a $29 price objective. The consensus price target is $23.58, and the 52-week range is $11.91 to $51.90.

Health care and technology are at opposite ends of the spectrum when it comes to pace of change. Technology companies change rapidly and need to be constantly innovating to maintain their competitive edge, while health care is known to have aged practices and slow adoption of anything new. The intersection of these two fields provides for what we believe to be significant opportunity to reshape the health care industry. The benefits that would arise from the ability to analyze and derive insights from health data are obvious, but currently, large sets of health-related data exist in silos, denying the industry the opportunity to realize correlations, trends, and disease triggers across patients medical records, behavior, and research.