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Broker upgrade sends Ansell Limited shares to a 3-month high

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Although the market has fallen slightly into the red, in morning trade the Ansell Limited (ASX: ANN) share price has climbed 2.5% to a three-month high of $23.86.

This has brought the health and safety protection solutions provider’s one-month return to approximately 9%.

Why are its shares higher today?

With no news out of Ansell this week, today’s gain is likely to be related to a research note out of Ord Minnett this morning.

According to the note, the broker has upgraded Ansell’s shares to an accumulate rating with an increased price target of $25.50.

This price target implies potential upside of over 7% from the current share price or over 9% when including its trailing fully franked dividend.

Ord Minnett has upgraded its earnings estimates for Ansell ahead of its investor session. The broker appears to believe that the company’s transformation program could soon start to produce a notable improvement in its performance.

Should you invest?

While I don’t plan to invest myself, I do think that Ord Minnett makes some valid points and Ansell could be worth a closer look.

In FY 2018 management expects earnings per share from its continuing operations to be between 91 cents and $1.01.

While even at the high end of its guidance range its shares are priced at a lofty 23x earnings, it is worth remembering that this guidance doesn’t take into account the $365 million after tax gain on the sale of the Sexual Wellness business.

Management continues to review options to redeploy the sale proceeds to create additional shareholder value.

Despite this, I would still choose fellow healthcare shares Ramsay Health Care Limited (ASX: RHC) and Nanosonics Ltd. (ASX: NAN) ahead of Ansell at their current share prices.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Nanosonics Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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