The Pullback In Sanofi Is A Buying Opportunity, Says Argus

Argus said in a note released Friday that the recent weakness in Sanofi SA (ADR) SNY shares offers a buying opportunity. The firm noted that the company's shares fell 2.1 percent over the second quarter compared to a 1-percent increase in the MSCI EAFE Index.

The firm has a Buy rating on Sanofi and a $55 price target.

Challenges

Argus noted that the company is being plagued by patent expirations on two of its top-selling drugs, namely Lantus for diabetes and Plavix for the prevention of blood clot.

Additionally, the firm said the company is facing legal challenges on its cholesterol lowering drug Praluent, which it is co-developing with Regeneron Pharmaceuticals Inc REGN, with Amgen, Inc. AMGN claiming that the drug infringed on patents held by it.

Offsetting Factors

Despite the floundering stock price, analyst John Eade believes the company is beginning to benefit from strong demand for its multiple sclerosis drugs as well as from cost-cutting programs.

"The company also has a strong new drug pipeline that includes Toujeo, a next-generation insulin product, and dipilumab, for atopic dermatitis and other inflammatory conditions," the analyst said.

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FY18 Expectations

Argus expects the company's 2017 revenues from continuing operations to benefit from the recent acquisition of Boehringer Ingelheim's consumer health business and higher sales of multiple sclerosis products. At the same time, the firm expects reduced diabetes drug sales.

The firm also sees margin pressure due to pricing pressures for diabetes products in the U.S. and costs related to the launch of Dupixent and Kevzara, partly offset by a sales force reorganization and other cost-savings initiatives.

"In 2018, we expect continued solid demand for multiple sclerosis drugs and increased sales in emerging markets to outweigh weaker sales of diabetes drugs, and look for the company's cost-savings program to benefit margins," the firm added.

On technicals, Argus noted that the company's shares are in a bullish pattern, making higher highs and higher lows since October 2016. The firm said the shares are trading at 14 times its 2018 earnings per ADS forecast, which is at the low end of the 14-26 range for large-cap pharma companies.

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