UBS Upgrades Galenica to Neutral After 20% Share Slide

Key Summary of the Upgrade

UBS has upgraded its rating for Galenica to “Neutral” from “Sell” following a significant share price decline of approximately 20% since late February. The bank has kept its price target for the stock unchanged at CHF85, which suggests a potential upside of about 4% from its current trading level of CHF82.05.

Valuation and Market Perspective

The decision to upgrade is primarily based on valuation. UBS noted that while sell-side estimates have remained largely stable, buy-side expectations have undergone a reset. The stock's current dividend yield of 3.1% for the upcoming year is consistent with its historical average, making it more attractive after the price correction.

Financial Outlook and Headwinds

UBS forecasts an organic sales growth of about 2% for Galenica between 2025 and 2030, which is below the company's own target range of 3% to 5%. However, it expects EBIT margins to improve from 5.6% in 2025 to 6.2% by 2030. A potential headwind is the anticipated liberalization of over-the-counter drug shipment regulations in Switzerland, which could negatively impact sales in 2029.

Scenario Analysis

The broker outlined a best-case scenario with a price of CHF107 and a worst-case scenario at CHF60, indicating a relatively balanced risk-reward profile. The bank's discounted cash flow model is based on a terminal sales growth rate of 2.5% and a weighted average cost of capital of 6.4%.

FAQ

Q: Why did UBS upgrade Galenica's stock?
A: The upgrade was prompted by a 20% fall in the share price, which brought the stock's valuation to a level UBS considers neutral, rather than a change in the company's fundamental outlook.

Q: What is the new price target for Galenica?
A: UBS maintained its price target at CHF85, implying a modest upside of approximately 4% from the current price.

Q: What is a major risk for Galenica's future sales?
A: A significant risk is the potential liberalization of Swiss regulations for shipping over-the-counter drugs, which could negatively affect the group's revenue starting in 2029.

Source: Investing.com