On Monday, UBS updated its stance on Hypera SA shares, the Brazilian pharmaceutical company, by reducing its price target. The new target is set at R$41.00, down from the previous R$45.00, while the Buy rating remains unchanged.
This adjustment follows the company's fourth-quarter results for 2023, which showed weaker-than-expected sales due to a sluggish demand for anti-flu medications, leading to overstocking issues.
Despite the recent challenges, UBS anticipates a return to normalcy in pharmaceutical sales, which supports the company's projected top-line growth of around 9% for 2024. The firm also expects Hypera's inventory requirements to stabilize, aiding in the company's deleveraging efforts. By the end of 2023, the leverage was 2.7 times, and it is forecasted to reduce to 2.5 times by the end of 2024 and further to 2.1 times by the end of 2025.
Looking at the long-term prospects, UBS believes Hypera is well-positioned to continue growing at a high-single-digit rate. This optimism is driven by factors such as an aging population, a robust pipeline of over 450 retail products, a shift towards the institutional market with 94 products in the pipeline, upcoming patent expirations, and potential revenue from adjacent streams like dermocosmetics and vitamins.
UBS also highlights Hypera's potential to benefit from lower interest rates due to its leverage and strong free cash flow (FCF) profile. The firm projects a five-year earnings per share (EPS) compound annual growth rate (CAGR) of 12%.
Additionally, the current valuation of Hypera's stock is seen as attractive, trading at 11 times the 2024 earnings estimate and 9 times the 2025 estimate, or 14 times and 12 times respectively when excluding the tax shield from tax subventions. These valuations further reinforce UBS's Buy rating on the stock.
InvestingPro Insights
As investors consider UBS's perspective on Hypera SA, they might find the latest data from InvestingPro to be a valuable supplement. Hypera's market capitalization stands at $3.9 billion, with a P/E ratio of 12.05, reflecting a market sentiment that aligns with its valuation as a prominent player in the Pharmaceuticals industry. Additionally, the adjusted P/E ratio for the last twelve months as of Q4 2023 is slightly lower at 11.96, suggesting a consistent valuation over the recent period.
InvestingPro Tips highlight that Hypera is trading at a low earnings multiple and near its 52-week low, which could indicate a potential entry point for value investors. The company's strong free cash flow yield is also emphasized, supporting UBS's view of Hypera's attractive valuation and strong FCF profile. With analysts predicting profitability for the current year and a history of maintaining dividend payments for nine consecutive years, Hypera's financial health seems resilient.
For those looking for more in-depth analysis, there are additional InvestingPro Tips available, providing a comprehensive understanding of Hypera's financials and market position. To access these insights and enhance your investment strategy, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
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