Book Profits on This Mid-Cap Pharmaceutical Play – OGN

Feb 11, 2022 12:00 AM PST | Team Kalkine
Book Profits on This Mid-Cap Pharmaceutical Play – OGN

Organon & Co.

Organon & Co. (NYSE: OGN) is a worldwide healthcare firm that develops and markets novel health solutions for women's health, biosimilars, and existing brands. OGN has six production facilities in Belgium, Brazil, Indonesia, Mexico, Netherlands, and United Kingdom.

Why should Investors Sell?

  • Decline in Topline and Bottom line: The company had reported a decrease in sales to USD 1.6 billion in Q3FY21 (ended September 30, 2021) from USD 1.61 billion in Q3FY20. It further reported a reduction in net income to USD 323 million in Q3FY21 vs. USD 547 million in Q3FY20. The company's net margin declined to 20.2% in Q3FY21 from 27.0% in Q2FY21, indicating a significant pressure on its bottom line.
  • Leveraged Balance Sheet: As of September 30, 2021, the company had cash & cash equivalents of USD 1.01 billion and total debt of USD 9.30 billion. Furthermore, its long-term debt-to-total-capital ratio was 120.6%, compared to the industry median of 26.9% for the same period. This demonstrates the company's increased exposure to balance-sheet risk.
  • Technical Bearish Indicators: The company's current market price was USD 34.89, trailing above 50 and 100 DMA and approaching the relative resistance level. Moreover, the 14-day RSI is around ~71.40, implying an overbought zone, which could lead to a further decline in stock price.

Valuation Methodology: Price/Earnings Multiple Based Relative Valuation

(Source: Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

The company has reported a significant fall in its fundaments. OGN's share price has risen 6.90% in the past month and is currently leaning towards the higher band of its 52-week range of USD 27.25 to USD 38.75. Based on a decline in fundamentals, weak margins, leveraged balance sheet, current valuation and bearish technical indicators, we recommend a "Sell" rating on the stock at the current price of USD 34.89, up 1.19% as of February 11, 2022, at 2:01 PM ET.

Three-Year Technical Price Chart (as of February 11, 2022, at 2:01 PM ET). Analysis by Kalkine Group

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.