OGN - Organon upgraded at Piper on strength of established brands segment

The shares of Organon & Co. ( NYSE: OGN ) traded higher in the morning hours Tuesday after Piper Sandler upgraded the Merck ( MRK ) spinoff, citing less than expected sales decline in the company’s Established Brands (EB) division.

However, analysts David Amsellem and Isaac C. Somekh remain cautious over its prospects noting that the segment expected to generate more than 60% of the company’s 2022 revenue is facing sales erosion, albeit to a limited extent.

“…..we do concede that segment erosion has been, and will likely continue to be, relatively limited,” the duo wrote as they upgraded OGN to Overweight from Neutral.

With OGN trading ~28% lower from the 52-week highs reached in March, the analysts do not view further multiple compression at a time when the company’s current 2022 EV/EBITDA stands at ~7x, indicating no significant premium to the peer group.

In addition, Piper points to OGN’s balance sheet, where net debt/ 2022E EBITDA hovers at ~4x with no notable maturities until 2028.

However, assuming the EBITDA estimate for 2023, the firm lowers the price target to $34, down from $37 based on the 2022 estimates previously.

Meanwhile, Seeking Alpha contributor, The Value Investor argued in a recent bullish thesis on OGN that the stock’s valuation looks “enticing.”

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