CA - Organon Q1 Earnings: Does The $1 Billion Debt Offering Signal Trouble?

2024-05-08 09:10:25 ET

Summary

• Organon released its Q1 2024 results on May 2, and the company's stock has nearly doubled since its low just five months ago.
• In this update, I take a look at the pharmaceutical and biosimilars company's Q1 earnings report and determine whether the market's optimism is indeed justified.
• I also look at several earnings adjustments and their impact on Organon's earnings per share and growth.
• Finally, I discuss whether yesterday's announcement to offer $1.0 billion of senior notes could be a sign of trouble and why I adopted a "wait-and-reevaluate" attitude on OGN stock.

Introduction

Organon & Co. ( OGN ) stock has performed phenomenally since its December 2023 low of $10.84 - to be exact, the total return since then has been an astounding 93%. I last looked at OGN stock and became cautiously optimistic in October, so admittedly a little early. However, I made it clear that the stock was already very cheap at $16. At this price, investors, who were demanding a generous 14% cost of equity, were essentially expecting Organon's free cash flow to decline by 6% each year.

At $16, Organon's stock was set for a decline, and at nearly $10, it was set for disaster - wrongly, in hindsight. Six months later, the stock is now trading at over $20. While this is still well below the price at which the stock was trading when it was spun off from Merck & Co. ( MRK ) in June 2021, an update seems warranted given the extremely strong recovery from its December low....

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