Citi maintains Buy on Royalty Pharma stock with $40 target

Thursday, Citi analysts maintained a Buy rating and a $40.00 price target on Royalty Pharma (NASDAQ:RPRX) shares, addressing concerns about potential impacts from international tax policies. The target represents significant upside potential for the $18.2 billion market cap company, which InvestingPro analysis suggests is currently undervalued. Geoff Meacham at Citi highlighted that while there has been market anxiety regarding the effects of tariffs on the biopharmaceutical industry, worries have also extended to companies like Royalty Pharma with tax structures in overseas jurisdictions.

Royalty Pharma’s share performance has recently been affected by fears over tax liabilities, specifically its exposure to the Pillar Two global minimum tax rate of 15%. Despite these concerns, the stock has demonstrated strong momentum with a 24.5% year-to-date return. After discussions with the company’s management, Citi analysts reported that Royalty Pharma’s established tax structure in Ireland, which manages passive income streams, is not subject to the Pillar Two policy.

The company’s tax structure is considered stable and is expected to remain unchanged despite a dynamic policy environment in the United States. Citi views the recent share price volatility as an opportunity for investors to purchase the stock at a lower price, reaffirming their positive outlook with a $40 price target.

Royalty Pharma has been navigating the broader concerns in the biopharmaceutical sector regarding tariff impacts and international tax policies. The reassurance provided by the company’s management to Citi suggests that its current tax strategy is secure and not affected by the new global tax regulations, which has reinforced the investment firm’s confidence in maintaining their Buy rating.

In other recent news, Royalty Pharma reported its Q4 2024 earnings, revealing earnings per share (EPS) of $0.3531, which was significantly below the forecasted $0.9849. The company’s revenue for the quarter was $594 million, also falling short of the expected $614.83 million. Despite these misses, Royalty Pharma achieved strong portfolio receipts for the year, reaching $2.8 billion, which was at the high end of its guidance. The company plans a $2 billion share repurchase in 2025 as part of its $3 billion authorization, signaling confidence in its long-term strategy.

In addition, Royalty Pharma announced a transformative step with the planned acquisition of its external manager to become an integrated company, which is expected to close in the second quarter of 2025. This internalization is anticipated to save over $100 million annually by 2026. Analysts noted that Royalty Pharma’s performance reflects a robust portfolio, with 13% growth in royalty receipts surpassing initial guidance. The company is also exploring global investment opportunities, emphasizing synthetic royalties as a growing funding method. These developments highlight Royalty Pharma’s strategic moves and its focus on delivering shareholder value.

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