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On Thursday, UBS reiterated its Neutral rating on Royalty Pharma (NASDAQ:RPRX) with a steady price target of $33.00. According to InvestingPro data, the stock has shown strong momentum with a 24.5% gain year-to-date, while analysts’ targets range from $30.14 to $48.00. The firm’s analyst pointed out that several pharmaceutical stocks have recently faced challenges due to concerns raised by Commerce Secretary Howard Lutnick about the intellectual property domicile of drug assets. This scrutiny comes amid discussions on closing the Irish tax loophole, a strategy often used by companies to reduce their tax burdens.
Royalty Pharma operates with a zero tax rate because of its pass-through structure, which is a characteristic of certain types of companies like royalty funds and business development companies. While the Trump administration has expressed a desire to close tax loopholes, it has not specifically targeted the pass-through structures utilized by royalty funds. The company maintains strong fundamentals with a 67.6% gross profit margin and has earned a "GOOD" Financial Health score from InvestingPro, which offers 12+ additional exclusive insights about RPRX.
The UBS analyst noted that Royalty Pharma’s latest annual report, the 10-K filing, introduced new potential risks related to tax legislation changes. These risks include the possibility of legislative, judicial, or administrative changes that could retroactively affect the company’s tax situation, as well as specific tax legislation changes in the UK and Ireland. These factors could have implications for Royalty Pharma’s financial position and have been duly noted by the company in their disclosures. Despite these concerns, analysts expect the company to remain profitable, with forecasted earnings growth for the current fiscal year.
In other recent news, Royalty Pharma reported its Q4 2024 earnings, revealing earnings per share (EPS) of $0.3531, which fell short of the forecasted $0.9849. The company also posted revenue of $594 million, missing the expected $614.83 million. Despite the earnings miss, Royalty Pharma achieved strong portfolio receipts for 2024, reaching $2.8 billion, which was at the high end of its guidance. Looking forward, the company projects portfolio receipts between $2.9 billion and $3.05 billion for 2025 and plans a $2 billion share repurchase as part of a $3 billion authorization.
Citi analysts maintained a Buy rating on Royalty Pharma with a $40 price target, addressing concerns about potential impacts from international tax policies. They noted that Royalty Pharma’s tax structure in Ireland is stable and not subject to the new global tax regulations. The company’s management reassured that the current tax strategy remains unaffected, reinforcing Citi’s confidence in maintaining their positive outlook. These recent developments highlight Royalty Pharma’s strategic initiatives and financial performance as the company navigates broader industry concerns.
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