On Tuesday, Morgan Stanley (NYSE:MS) initiated coverage on Hims & Hers Health, Inc. (NYSE:HIMS) with a bullish stance, assigning the stock an Overweight rating and setting a price target of $42.00. The firm recognizes Hims & Hers as a strong investment opportunity, emphasizing its impressive revenue compound annual growth rate (CAGR) projection of 30% from 2024 to 2026. This forecast builds upon the company’s significant annual growth rate of 80% over the past three years.
Morgan Stanley highlights the company's solid performance across digital health and direct-to-consumer (DTC) sectors. The firm’s revenue and EBITDA estimates for Hims & Hers in 2025 are 5% and 9% higher, respectively, than the consensus on Wall Street. The company's scalable technology platform boasts an 80% gross margin, and its leadership includes executives and board members with extensive experience from notable companies such as Uber (NYSE:UBER), Netflix (NASDAQ:NFLX), DoorDash (NASDAQ:DASH), and Tinder.
The company's expertise is further strengthened by healthcare industry veterans, including a former deputy commissioner at the FDA and executives from leading pharmaceutical companies like Novo Nordisk (NYSE:NVO), Pfizer (NYSE:PFE), and Teva. Additionally, a senior advisor from the Cleveland Clinic contributes to the company's depth of knowledge. Morgan Stanley points to a significant year-over-year subscriber increase of 175% in the third quarter of 2024, outpacing the 44% growth of the overall business.
The $42 price target is based on an enterprise value to sales (EV/S) multiple of 3.5 times the calendar year 2026, which aligns with the current multiple on the next twelve months. When adjusted for growth, the EV/S/G multiple of 0.12 times is viewed as attractive compared to the DTC Internet/Digital Health sector's 0.36 times and the small to mid-cap (SMID) software sector's 0.42 times. The price target also reflects an enterprise value to EBITDA (EV/EBITDA) multiple of 24 times.
Despite potential volatility in Hims & Hers’ stock, Morgan Stanley suggests that the investment case has a favorable risk-reward profile, with a substantial upside in the bull case scenario compared to the bear case, indicating a nearly 2.5 to 1 skew in favor of potential gains.
In other recent news, Hims & Hers Health has seen significant developments. The company 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.
In addition, Hims & Hers Health announced a partnership with Eli Lilly (NYSE:LLY) to streamline access to FDA-approved obesity medication Zepbound. The collaboration involves integrating with LillyDirect, a self-pay pharmacy channel.
The company also expanded its board of directors, appointing Deb Autor as a new independent director. Analysts have noted these developments, with TD Cowen reaffirming its Buy rating on Hims & Hers Health, while BofA Securities downgraded it from Buy to Underperform. Piper Sandler and Needham raised their price targets, maintaining Neutral and Buy ratings respectively.
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