Analysts believe that Medtronic (NYSE: MDT), Teva Pharmaceuticals (NYSE: TEVA), UnitedHealth Group (NYSE: UNH) and Zimmer Holdings (NYSE: ZMH) shares still have some headroom, though they all have handily outperformed the S&P 500 over the past six months. They are all dividend payers as well.
It is not unusual for stocks on a tear to overrun their mean price targets, which is a signal of how far analysts on average expect the share price to climb in the next year. Sector-leading Questcor Pharmaceuticals, as well as Humana and Eli Lilly, have done just that and are trading near their 52-week highs. Others in the health care sector are at or near their mean price targets.
This medical device maker has announced its intention to acquire Ireland-based Covidien to expand its product offerings and potentially cut its tax rate. Minneapolis-based Medtronic has a market capitalization above $63 billion and a dividend yield near 1.9 percent. Its operating margin is greater than the industry average.
Of the 20 analysts polled by Thomson/First Call, 14 recommend buying shares, with five of them rating the stock at Strong Buy. The mean price target, or where analysts expect the share price to go, is about 10 percent higher than the current share price and would be a new multiyear high.
The share price ended Tuesday up more than 11 percent year to date, and well above the 50-day and 200-day moving averages. Over the past six months, the stock outperformed not only competitor St. Jude Medical, but the broader markets as well.
The chairman of the board recently announced his sooner-than-expected retirement, and Teva Pharmaceuticals said it would reduce the number of its board members. The Israel-based generic pharmaceutical maker sports a market cap of more than $45 billion and offers a dividend yield near 2.2 percent. Its return on equity is less than seven percent.
Less than half of the 25 analysts surveyed recommend buying shares, though all the rest rate the stock at Hold. But analysts do see some headroom for shares, as their mean price target is more than six percent higher than the current share price. The consensus target would be a new multiyear high.
The share price is more than 30 percent higher year to date, though it is up only marginally from a month ago. The 50-day moving average has provided support in the past few weeks. Over the past six months, the stock has narrowly underperformed competitor Actavis.
This Minnesota-based company is expected to report a year-over-year decline in per-share earnings when it shares second-quarter results in mid-July. It has a market cap of more than $80 billion. The dividend yield is about 1.8 percent. The price-to-earnings (P/E) ratio is less than the industry average.
All but four of the 23 polled analysts recommend buying shares of UnitedHealth, with nine of them rating the stock at Strong Buy. A move to the analysts' mean price target would represent a gain of more than five percent for shares. Here too the consensus target would be a new multiyear high.
Shares are up more than four percent in the past two weeks and once again approaching the 52-week high set back in March. The share price is more than 24 percent higher than a year ago. While the stock has outperformed the broader markets over the past six months, it has underperformed Aetna and Humana.
Related Link: UnitedHealth Increases Shareholder Returns
This medical appliances maker is pursuing an acquisition of Biomet, which is owned by several private equity firms. Both companies are based in Warsaw, Indiana, and Zimmer Holdings has a market cap of more than $17 billion and a dividend yield around 0.8 percent. The operating margin is greater than the industry average.
For at least three months, the consensus recommendation of analysts has been to buy shares, with 10 out of 29 of them rating the stock at Strong Buy. The mean price target suggests about 10 percent potential upside, relative to the current share price. The consensus target would be a multiyear high.
The share price is up more than 12 percent since the beginning of the year, despite pulling back a bit in the past few weeks. The stock has outperformed Medtronic and UnitedHealth Group over the past six months, but it has also underperformed Teva Pharmaceutical in that time.
At the time of this writing, the author had no position in the mentioned equities.
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