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On Tuesday, BofA Securities adjusted its outlook on Hims & Hers Health, Inc. (NYSE:HIMS), increasing the price target to $26 from the previous $22 while maintaining an Underperform rating on the stock. The revision follows the announcement of Hims & Hers’ partnership with Novo Nordisk (NYSE:NVO), a development that analysts at BofA Securities view as beneficial for two main reasons.
Firstly, the partnership is expected to reduce litigation risk for Hims & Hers as it establishes a cooperative relationship with the brand manufacturer, Novo Nordisk. Secondly, the transition of patients from Hims & Hers’ compounded semaglutide to Novo Nordisk’s branded Wegovy is predicted to be gross profit neutral on a per-patient basis.
The new partnership incentivizes Hims & Hers to switch patients from its own compounded version of semaglutide to Wegovy. This strategic move could potentially discourage Novo Nordisk from pursuing legal action against Hims & Hers by fostering a mutually advantageous environment for both entities.
BofA Securities’ analysis indicates that the earnings contribution from the partnership with Novo Nordisk could mirror the gross profit Hims & Hers currently enjoys from its compounded semaglutide. Previously, Hims & Hers was estimated to capture a 50-60% gross margin on its $165 annual subscription, which is paid monthly. With an estimated 90% gross margin on the subscription portion allocated to Hims & Hers, the company retains approximately $90 of gross profit without directly handling the drug.
The partnership also serves to further validate Hims & Hers’ direct-to-consumer model as a viable platform for broader drug partnerships. In light of this, BofA Securities has increased the target EBITDA multiple from 17x to 20-21x, reflecting a longer anticipated duration of GLP-1 sales.
Despite the increased price target and the recognition of positive steps taken by the company, BofA Securities reiterates its Underperform rating. The firm cites weakening consumer trends and growth rates observed as of the end of March as the basis for the cautious stance on Hims & Hers stock.
In other recent news, Hims & Hers Health, Inc. has entered a strategic partnership with Novo Nordisk to offer Wegovy®, an FDA-approved medication for chronic weight management, through its platform. This collaboration includes a comprehensive package priced at $599 per month, featuring 24/7 care, clinical support, and nutritional guidance. The partnership aims to enhance long-term health outcomes and is expected to be discussed further during the company’s upcoming earnings call. Despite this promising development, Citi analyst Daniel Grosslight has maintained a Sell rating on Hims & Hers with a revised price target of $25, citing concerns about revenue growth deceleration and potential market risks. Grosslight anticipates the company will exceed earnings estimates due to strong GLP-1 product performance but warns of potential challenges affecting stock performance. Meanwhile, a recent FDA warning about compounded topical finasteride products for hair loss treatment has raised safety concerns, although it does not prevent Hims & Hers from continuing sales. BofA Securities analyst Allen Lutz has maintained an Underperform rating with a $22 price objective, noting potential impacts on customer retention and growth trends. Investors are closely monitoring these developments as Hims & Hers navigates both partnership opportunities and regulatory challenges.
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