Last week, JP Morgan Chase & Co (NYSE: JPM) initiated coverage on Sigma Healthcare Ltd (ASX: SIG) shares.
In its 19 September initiation report, JP Morgan gave the stock an overweight rating and a price target of $3.30.
Sigma has risen more than 100% in the past 5 years.
The company is trading at $3 at the time of writing, which is not too far below its all-time high of $3.32.
Let's find out how Sigma has performed recently, and why JP Morgan thinks the stock can rise another 10% from here in the next 12 months.
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Recent results
As reported by The Motley Fool's Cameron England, Sigma Healthcare shares soared 7% when releasing their FY25 result.
Given that this was the first full-year result since the $32 billion merger with Chemist Warehouse Group, which was finalised in February, this was a noteworthy announcement for existing and prospective investors.
The company reported more than 40% earnings growth for the full year.
Notably, management also upgraded its expected cost synergies from the merger from $60 million to $100 million.
JP Morgan predicts further upside for Sigma Healthcare
In its initiation report, JP Morgan said Sigma Healthcare offers investors a "rare combination of double-digit growth at scale".
The investment bank cited the following five attributes:
1) market-leading scale in a defensive industry, which is 2) underpinned by an unassailable value position; 3) $100m of synergies over four years supporting long-term growth; 4) a global addressable market with demonstrated success outside of Australia; and 5) a capital-light model and a strong balance sheet that we estimate will reach net cash by FY29.
JP Morgan also described Chemist Warehouse as "a highly cash generative business, driven by a lack of capital intensity (working capital or capex) to drive growth, which is achieved with healthy margins."
The investment bank acknowledged the company's steep valuation, which it estimates to be trading at 44.5x on JPMorgan's 6.7 cents per share EPS forecast.
However, JP Morgan believes this is justified, also projecting the company will deliver 14.7% annual EPS growth over the next 3 years.
What are other analysts saying?
Jarden analysts are also bullish on Sigma Healthcare shares, also placing a price target of $3.30 on the ASX 200 healthcare stock.
However, as reported by The Motley Fool's Bronwyn Allen, Dylan Evans from Catapult Wealth recently placed a sell rating on Sigma Healthcare shares on valuation grounds.
Therefore, it appears that experts have mixed views when it comes to Sigma Healthcare shares.
