Thursday, BofA Securities issued a downgrade for Hims & Hers Health, Inc. (NYSE: HIMS), shifting from a Buy to an Underperform rating. The decision comes as a direct response to Amazon (NASDAQ:AMZN)'s recent entry into the erectile dysfunction (ED) and hair loss markets, which are key segments for Hims & Hers.
The analyst from BofA Securities explained that Hims & Hers has been able to maintain high gross margins exceeding 80% primarily due to its core hair loss and ED products. The company's business model has benefited from sourcing drugs at low costs and selling them at significant mark-ups. For instance, Hims & Hers acquires finasteride, a hair loss medication, at a low price and sells it for a monthly prescription cost between $22 and $39.
However, with Amazon stepping into this space, there is an anticipation of increased competition that could affect Hims & Hers in several ways. The analyst predicts that this will lead to a reduction in the prices Hims & Hers can charge, a challenge in acquiring and retaining new customers, and a potential decrease in the lifetime value to customer acquisition cost ratio (LTV/CAC) for Hims & Hers.
An analysis provided by BofA Securities (Exhibit 1) highlights the pricing differences between Hims & Hers and Amazon, indicating the potential impact on Hims & Hers' market position. Consequently, BofA Securities has adjusted its forecast for the company's revenue growth, expecting a decrease by approximately 10 percentage points from 2025 to 2027. Additionally, the firm anticipates a reduction in operating leverage for Hims & Hers.
Reflecting these concerns, BofA Securities has lowered its price objective (PO) for Hims & Hers from $32 to $18 and reduced the target multiple from 33 times CY25 EBITDA to 19 times CY25 EBITDA. This revision in valuation metrics signifies a more cautious outlook on the company's financial performance in the wake of Amazon's competitive threat.
In other recent news, Hims & Hers Health, Inc. has shown impressive financial performance with a 77% year-over-year increase in third-quarter sales, surpassing $400 million. The company's adjusted EBITDA also grew significantly, reaching over $50 million, indicating a healthy 13% margin. Analyst firms, including Piper Sandler, Needham, TD Cowen, Citi, and BofA Securities, have updated their outlooks on the company, with price target increases reflecting the company's solid performance and future potential.
Despite facing challenges such as gross margin pressures and uncertainties surrounding new product sustainability, Hims & Hers has managed to maintain robust growth. The company has revealed plans to diversify its product offerings, including the launch of liraglutide, the first generic GLP-1, in 2025. This move is expected to bolster the company's market position and address concerns regarding future business performance.
For the fourth quarter of 2024, Hims & Hers is forecasting revenue between $465 million and $470 million, marking an 89% to 91% year-over-year increase. The full-year revenue is projected to be between $1.46 billion and $1.465 billion, reflecting a 67% to 68% increase.
InvestingPro Insights
Despite the recent downgrade by BofA Securities, InvestingPro data reveals some intriguing aspects of Hims & Hers Health, Inc. (NYSE: HIMS) that investors should consider. The company's revenue growth has been impressive, with a 56.7% increase over the last twelve months as of Q3 2024, and an even more striking 77.13% quarterly growth in Q3 2024. This robust growth aligns with the company's strong market position in the hair loss and ED markets mentioned in the article.
Moreover, HIMS has shown significant profitability improvements, with an adjusted operating income of $46.04 million and an operating income margin of 3.71% over the last twelve months. This financial performance is reflected in the stock's remarkable price performance, with a 275% total return over the past year.
InvestingPro Tips highlight that management has been aggressively buying back shares, which could indicate confidence in the company's future prospects despite the competitive threats. Additionally, analysts predict the company will be profitable this year, suggesting that the market may be underestimating HIMS' ability to navigate the challenges posed by Amazon's entry into their key markets.
For investors seeking a more comprehensive analysis, InvestingPro offers 18 additional tips for HIMS, providing a deeper understanding of the company's financial health and market position.
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