It's been a pretty great week for Organon & Co. (NYSE:OGN) shareholders, with its shares surging 14% to US$18.71 in the week since its latest annual results. Revenues were US$6.3b, approximately in line with whatthe analysts expected, although statutory earnings per share (EPS) crushed expectations, coming in at US$3.99, an impressive 70% ahead of estimates. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.
NYSE:OGN Earnings and Revenue Growth February 18th 2024
Taking into account the latest results, Organon's eight analysts currently expect revenues in 2024 to be US$6.38b, approximately in line with the last 12 months. Statutory earnings per share are forecast to sink 19% to US$3.26 in the same period. In the lead-up to this report, the analysts had been modelling revenues of US$6.39b and earnings per share (EPS) of US$3.37 in 2024. The analysts seem to have become a little more negative on the business after the latest results, given the small dip in their earnings per share numbers for next year.
It might be a surprise to learn that the consensus price target was broadly unchanged at US$21.11, with the analysts clearly implying that the forecast decline in earnings is not expected to have much of an impact on valuation. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. Currently, the most bullish analyst values Organon at US$27.00 per share, while the most bearish prices it at US$13.00. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. From these estimates it looks as though the analysts expect the years of declining revenue to come to an end, given the flat forecast out to 2024. That would be a definite improvement, given that the past five years have seen revenue shrink 8.2% annually. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue grow 9.1% per year. So it's pretty clear that, although revenues are improving, Organon is still expected to grow slower than the industry.
The Bottom Line
The most important thing to take away is that the analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. On the plus side, there were no major changes to revenue estimates; although forecasts imply they will perform worse than the wider industry. The consensus price target held steady at US$21.11, with the latest estimates not enough to have an impact on their price targets.
Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. We have forecasts for Organon going out to 2026, and you can see them free on our platform here.
We don't want to rain on the parade too much, but we did also find 5 warning signs for Organon (3 make us uncomfortable!) that you need to be mindful of.
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