Opioid Deal May Be Sped Up Amid State Shortfalls, Analyst Says
Opioid Deal May Be Sped Up Amid State Shortfalls, Analyst Says
(Bloomberg) -- Companies tied to the opioid epidemic could see a smaller settlement with U.S. states in return for faster payments as local governments hit by the coronavirus face a fiscal crisis and dwindling tax base, according to Morgan Stanley analysts.
The global pandemic has taken some of the focus off the opioid lawsuits accusing drugmakers and distributors of understating the risks and failing to halt large suspect purchases, but the legal overhang still weighs on shares.
“As states are facing increased fiscal pressure, we think they might be more willing to accept a lower lump sum, in exchange for an accelerated payment schedule,” analyst Ricky Goldwasser said. An $18 billion settlement with a $14.6 billion upfront payment “could be the sweet spot to get to a resolution” for the trio of drug distributors AmerisourceBergen Corp., McKesson Corp. and Cardinal Health Inc., she wrote in a client note.
That prospect was enough for Goldwasser to raise her rating on AmerisourceBergen to overweight from equal-weight and increase her price target to $112 from $94. McKesson was kept at overweight while the 12-month target was boosted to $194 from $163. She also increased her price target for Cardinal Health by $2 to $59 but kept her rating at equal-weight as the distributor has less capacity to take on more debt and still maintain an investment grade rating than its two peers.
All three drug distributors have outperformed the broader market since the start of the year. AmerisourceBergen has gained over 10% while McKesson has added 4.9% and Cardinal Health 2.5%. The S&P 500 index is down 7.2% over the same period.
©2020 Bloomberg L.P.