WebMD (WBMD) Upgraded on Valuation, Pharma Ad Growth

Citi upgrades WebMD (WBMD) from Hold to Buy, citing valuation. Target $33 to $35. Estimates unchanged. Analyst Mark Mahaney think’s that WBMD’s collapse this year means big upside:

We view the 32% YTD correction in the shares as providing a very good entry point, with the 13X ’08/11X ’09 EV/EBITDA multiples providing very attractive valuation levels. $35 PT – based on 14X ’09 EBITDA – provides 25% upside from current levels.

On a more fundamental level, Mahaney thinks that WBMD’s size compared with its closest competitor will allow it to capture a huge share of big ad revenue coming from big pharma, which he thinks is underspending online:

Pharma Ad Spend Online Still Well Underindexed — Vs. 7%-8% penetration for overall U.S. Internet advertising, less than 4% of Pharma’s $14B+ U.S. promotional ad spend is currently online. To quantify the secular growth opportunity, were Pharma’s online ad penetration to match our forecasted overall level of 10.5% by 2010, this would imply a 35% segment CAGR.

WBMD Remains The Leading Online Source For Both Consumers & Doctors —a) WBMD has 10X the page views of the closest health online content site; b) Our proprietary survey of 100 health related keywords reveals that WebMD is among the top 10 organic search results 79% of the time; & c) WBMD’s 1.1MM CME programs in Q1:08 were materially higher than competing sites.

Mahaney also cites easier comps going forward and higher M&A activity.

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