One of the most prominent stocks that most investors like to keep in their portfolios is Sanofi. (SNY, Financial). Among the gurus, James Barrow (Trades, Portfolio) is one of the largest shareholders of the stock and some of the other prominent investors who hold a position in Sanofi are Ken Fisher (Trades, Portfolio), Bill Nygren (Trades, Portfolio) and Warren Buffett.
Sanofi, a global healthcare leader, discovers, develops and distributes therapeutic solutions focused on patients' needs. Sanofi has core strengths in diabetes solutions, human vaccines, innovative drugs, consumer healthcare and animal health.
Overview
- Diabetes segmental revenue:
In 2015, net sales for the pharmaceuticals segment were €29.8 billion, up 7.5% on a reported basis. But in this year, the performance of diabetic drugs sales were not good. According to company financials, the main reason behind the fall in the sale of their prominent drug Lantus is the slower growth of basal insulins market and further rises in the level of rebates compared to the last financial year. To curb the anticipated fall of Lantus, Sanofi had launched Toujeo in 2015 that earned €164 million.
Operating margin of diabetic products:
Sanofi’s total revenue from its pharmaceutical segment stood at €29.8 billion in 2015, reflected 0.8% growth. Diabetes drug sales amounted to €7.6 billion, comprising 25.44% of total pharmaceuticals sales and 20.5% of total group sales. The operating margin of the Pharmaceuticals segment declined to 26.9% in 2015, reflecting a margin contraction.
2. Vaccines segment revenue:
Sanofi’s total revenue from its vaccines segment were €4.74 billion, up 19.4% on a reported basis and 7.3% at constant exchange rates. Vaccines business contributed €4.7 billion to Sanofi during 2015, reflecting a jump in annual sales by 7.3%. The operating margin for the Vaccine segment stood at 29.8% in 2015, the highest among the three segments. The company expects further margin improvement for the business.
Dengvaxia new vaccine will fuel sales
In 2015 Sanofi added one new vaccine for the treatment of dengue, and even though this vaccine has not yet generated any sales, but they have got approval from Brazil, Mexico and the Philippines. This vaccine is Dengvaxia; management believes that in the next five years this medicine will outgrow the market in vaccines. The growth will be driven by Dengvaxia, and their leading products in flu, pediatric combinations, and boosters. Vaccination rates for these products remain below public health targets. And management believes that demand typically exceeds supply, so a key priority for them is to produce more.
New projectÂ
Sanofi Pasteur leads the vaccine field for viruses in the same family as Zika virus, with licensed vaccines against Yellow Fever, Japanese Encephalitis and, most recently, Dengue. Importantly, Sanofi Pasteur’s expertise, established R&D and industrial infrastructure for the newly licensed vaccine for dengue, Dengvaxia, can be rapidly leveraged to help understand the spread of Zika and potentially speed identification of a vaccine candidate for further clinical development.
Catalyst
Sanofi performance on multiples:
- EV to EBITDA:
As of March 11 Sanofi was trading at EV/EBITDA multiple of 9.33x. The company has been trading at a discount when compared with Eli Lilly (LLY, Financial), Pfizer (PFE, Financial), and Merck & Co. (MRK, Financial). These companies were trading at EV-to-EBITDA multiples of 15.91x, 11.26x, and 11.11x.
Many investors believe that the reason behind the decline of the multiple is the diabetic market, which is very dynamic. Companies continuously developing new medicine for diabetic and price pressure from government are some of the reason behind it. But looking specifically at the Sanofi`s, I believe that it's continued underperformance in diabetic segment is the main cause of trading at a discount of the multiple. According to Bloomberg industry average EV/EBITDA is 12.02x.
2. P/E (ttm)
As of March 11 Sanofi was trading at P/E multiple of 22.74x. The company has been trading at a discount when compared with Eli Lilly, Pfizer, and Merck & Co. These companies were trading at P/E multiples of 33.03, 27.43x, and 34.10x, respectively.Â
Wall Street expectation
The stock's consensus price target is $60.51 with a median target of $48.89.Â
With more than 29,000,000 shares in his portfolio, James Barrow (Trades, Portfolio) is Sanofi`s leading guru shareholder. Others include Ken Fisher (Trades, Portfolio), Bill Nygren (Trades, Portfolio) and Warren Buffett.
The above image is subject to copyright of GuruFocus.com except Vaccine segment revenue.
While writing this article, I do not own any stock of this organisation, nor do I have any plans to invest in the above mentioned stock for the next 72 hours.
