On Tuesday, Jefferies adjusted its outlook for Dr. Reddy's Laboratories (DRRD:IN) (NYSE: RDY), reducing the stock price target to INR5,010 from INR5,040 while keeping an Underperform rating on the stock.
The revision follows the company's fourth-quarter financial performance, where earnings before interest, taxes, depreciation, and amortization (EBITDA) and profit after tax (PAT) fell short of the firm's expectations. The miss was attributed primarily to higher operational expenditures.
Dr. Reddy's reported a 14% and 7% shortfall in EBITDA and PAT, respectively, against Jefferies' estimates for the fourth fiscal quarter of 2024. The firm anticipates that EBITDA margins will continue to face challenges in the fiscal year 2025 due to increased expenses in research and development (R&D) and selling, general, and administrative (SG&A) costs. A lackluster pipeline for new product launches in the United States was also noted as a factor likely to impact the company's financial health.
The firm highlighted several initiatives undertaken by Dr. Reddy's to fortify its market position in India and other regions through partnerships. Still, it was noted that the tangible benefits of these efforts are expected to materialize post the fiscal year 2026. In light of these developments, Jefferies has revised its earnings per share (EPS) estimates for the fiscal years 2025 and 2026, projecting a reduction of 2-4%.
The updated stock price target reflects a slight decrease from the previous target, aligning with the firm's expectations of the pharmaceutical company's performance challenges in the near term. Jefferies reiterated its Underperform rating, signaling a cautious stance on Dr. Reddy's shares amidst the anticipated pressure on future earnings.
InvestingPro Insights
As investors digest the latest analysis from Jefferies on Dr. Reddy's Laboratories, real-time data from InvestingPro provides additional context. The company is currently trading at a P/E ratio of 19.81, which is considered low relative to its near-term earnings growth.
This could indicate that the stock is potentially undervalued, offering a more attractive entry point for value investors. Moreover, Dr. Reddy's has shown a commendable revenue growth of 14.34% over the last twelve months as of Q3 2024, highlighting its ability to expand its financial top line.
InvestingPro Tips further reveal that Dr. Reddy's operates with a moderate level of debt and has been able to maintain dividend payments for an impressive 23 consecutive years, suggesting a stable financial position and a commitment to returning value to shareholders.
Furthermore, the stock has been profitable over the last twelve months and analysts predict the company will remain profitable this year. For investors seeking more detailed analysis, there are 9 additional InvestingPro Tips available, providing a deeper dive into Dr. Reddy's financial health and market position.
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