On Friday, Lonza Group AG (LONN:SW) (OTC: LZAGY) saw its price target increased by an analyst from Société Générale Group. The new price target is set at CHF666.00, up from the previous CHF635.00, while the Outperform rating remains unchanged. The adjustment reflects a 5% increase as the valuation model shifts focus to the year 2025.
The analyst's updated valuation is based on a discounted cash flow (DCF) method that conservatively estimates capital expenditures (capex) relative to sales. Despite the peak capex-to-sales ratio of 30% during the years 2022 to 2024, the forecast assumes this will only decrease to the upper end of the company's 2028 guidance, which is in the mid to high teens.
The new price target implies a 2025 core P/E ratio of 38 times, which represents a 39% premium over global peers. This valuation is justified by the analyst's confidence in Lonza's sustained leadership within the high-barrier biologics segment of the biopharmaceutical contract development and manufacturing organization (CDMO) industry.
Lonza's position in the market is seen as strong due to the high barriers to entry in the biologics sector. The company's expertise and established reputation in this niche are factors contributing to the positive outlook and premium valuation compared to its peers.
In other recent news, life sciences leader Lonza Group AG reported a softer performance in the first quarter. Despite the initial challenges, the company maintains its full-year trajectory, expecting solid sales in the second half of the year. Lonza has confirmed its outlook for 2024, projecting flat constant exchange rate (CER) sales growth and a CORE EBITDA margin in the high 20s.
The company anticipates a stronger second half, backed by good momentum in its Biologics division and robust commercial demand in the Small Molecules division. New growth projects are underway, including a drug product facility in Stein and a Mammalian drug substance plant in Switzerland. The company also continues its share buyback program and has announced Wolfgang Wienand as the new CEO.
InvestingPro Insights
As the analyst from Société Générale Group uplifts Lonza Group AG's price target, reflecting confidence in the company's future, real-time data from InvestingPro aligns with this optimistic outlook. The company's management has demonstrated a strong commitment to shareholder value, as indicated by aggressive share buybacks. Furthermore, Lonza's stock stability is underscored by its low price volatility and the impressive track record of maintaining dividend payments for 25 consecutive years. These attributes, coupled with a moderate level of debt, provide a solid foundation for the company's financial health.
InvestingPro Data shows Lonza with a market capitalization of $40.16 billion and a revenue growth of 7.94% in the last twelve months as of Q4 2023. The company's P/E ratio stands at 31.87, adjusted for the same period, which may seem high but could be justified by the company's robust market position and expected profitability. With analysts predicting profitability for the current year and the company having been profitable over the last twelve months, the outlook for Lonza remains positive. Additionally, the stock has experienced a large price uptick of 42.32% over the last six months, indicating strong market performance.
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