24Q4 revenues were $1.59 billion, up 3% at constant currency but down 0.4% YOY and 2.8% below my estimate. GAAP diluted EPS was $0.42, compared with 23Q4’s $2.13 and my estimate of $0.60. Non-GAAP EPS of $0.90 was above last year’s $0.88, but below my estimate of $0.97.
This was the second consecutive year of disappointing fourth quarter results. Although this year’s were less disappointing than last, Organon now has a well-established trend of declining annual earnings over the past five years. This earnings decline is reflected in the stock’s extremely low P/E multiple, which highlights market expectations of further declines in the years ahead. It is also displayed in the stock’s 52% drop since the spin-off from Merck.
Management, I believe, has played the tough hand that it has been dealt reasonably well. The company has shown better sales stability in its Established Brands off patent portfolio than many might have imagined and it has made several smart bolt-on acquisitions. However, Organon has been unable to execute fully on the original premise of the spin-off, which was to redeploy an expected $1 billion plus of annual free cash flow into new business opportunities to pay down debt and grow the overall business. Annual free cash flow has fallen consistently short of that target, so Organon has shown little tangible benefit so far from these bolt-on opportunities. That could change over time; but with the possible exception of VTAMA, its recently acquired treatment for atopic dermatitis, it does not seem likely that change will come quickly enough to make a difference.
With the 24Q4 results, management initiated guidance for sales and most key income statement line items. My projections are mostly in line with that guidance. For 2025, I now forecast revenues of $6.30 billion, within the $6.125-$6.325 guidance range, GAAP EPS of $2.34 and non-GAAP EPS of $3.62. For 2026, my projections show revenues of $6.42 billion, GAAP EPS of $2.28 and non-GAAP EPS of $3.58.
With my revised projections, I am lowering my price target from $21 to $16. The new price target equates to a P/E multiple of 6.5 times projected 2026 GAAP EPS of $2.28 and 4.2 times projected 2026 non-GAAP EPS of $3.58. At today’s closing price of $14.13, the $16 price target along with OGN’s 7.9% dividend yield represents a potential total return of 14.1%. Hence, I am lowering my performance rating from “1” (Buy) to “2” (Outperform).
Since my last report (11/3), OGN’s stock has declined 21.8%, compared with the S&P SmallCap 600’s 7.9% decline and the 6.7% drop in the PHLX Pharmaceuticals Index (DRG). Despite the poor relative performance, the stock has traded sideways since mid-November and remains above its December 23 intraday low of $13.87 (though just barely) and its December 2023 all-time low of $10.84. I therefore view the near-term technical set-up as reasonably positive, which is why my price target valuation multiples are slightly above the stock’s current one-year forward multiples.
This is a summary of my recent update report on Organon & Co. (OGN). To obtain a copy of the report, please reach out to me using the contact information provided below.
April 2, 2025 (Report published on April 1, 2025.)
Stephen P. Percoco
Lark Research
839 Dewitt Street
Linden, New Jersey 07036
(908) 975-0250
admin@larkresearch.com
© 2015-2025 by Stephen P. Percoco, Lark Research. All rights reserved.
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