Hims and Hers stock named top pick for 2025 on growth potential—Needham

On Monday, Needham & Company raised their price target on Hims & Hers Health, Inc. (NYSE: HIMS) shares to $31 from the previous target of $28, while reiterating a Buy rating on the stock. The adjustment comes as Needham positions Hims & Hers as their top pick in the digital health sector for the year 2025, emphasizing the company's potential in the market despite recent volatility.

The volatility referenced is tied to the impact of Food and Drug Administration (FDA) updates concerning shortages of tirzepatide, which had influenced the stock's performance as 2024 came to a close. Needham analysts believe that this period of weakness presents an attractive entry point for investors, highlighting Hims & Hers' diverse avenues for growth.

Hims & Hers' growth strategy is noted for its focus on personalized product adoption within its core business, alongside an expanding range of weight loss solutions. This strategic diversity is expected to reduce the company's reliance on compounding, which is particularly relevant in a consumer market where Generation Z shows an increasing openness to weight loss medications.

Needham's confidence in Hims & Hers is further solidified by the addition of the company to the Needham Conviction List, simultaneously removing Accolade, Inc. (ACCD). The firm's analysts underscore that Hims & Hers' shares appear undervalued, trading at only 3 times the fiscal year 2025 revenue estimates. They anticipate that the company will be able to achieve the "Rule of 50" even without significant contributions from GLP-1 related products.

The Rule of 50 is a metric used by investors to gauge a company's performance, suggesting that a combined revenue growth rate and profit margin should exceed 50%. Needham's outlook implies that Hims & Hers is on track to meet or surpass this benchmark, reflecting a robust business model and promising financial trajectory.

In other recent news, Hims & Hers Health experienced significant developments. The FDA's decision to resolve the tirzepatide injection shortage led to a 15% drop in the company's shares. This decision could alter the market dynamics for obesity drugs, affecting companies like Hims & Hers Health that have been offering compounded versions of such drugs. Meanwhile, Morgan Stanley (NYSE:MS) initiated coverage on Hims & Hers Health with an Overweight rating, citing its potential for growth and strong performance in digital health and direct-to-consumer sectors.

In addition, Hims & Hers Health reported a 77% year-over-year increase in Q3 sales, surpassing $400 million, with an adjusted EBITDA over $50 million. The company also forecasted Q4 2024 revenue between $465 million and $470 million, marking an 89% to 91% year-over-year increase, and full-year revenue expected to be between $1.46 billion and $1.465 billion. Furthermore, the company announced a partnership with Eli Lilly (NYSE:LLY) to streamline access to FDA-approved obesity medication Zepbound.

On another note, Ro, a digital health company, announced a collaboration with Eli Lilly, aiming to streamline the process for Ro patients to obtain Zepbound through an integration with LillyDirect. Lastly, Hims & Hers Health saw a significant surge in its shares, with an approximate 70% increase in November, following third-quarter results that exceeded market expectations in both revenue and profitability.

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