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Investing.com -- Galenica’s (SIX:GALE) stock dropped more than 6% on Friday following a downgrade from UBS Global Research, which shifted its rating to "neutral" from "buy."
The Swiss healthcare group, which operates one of the country’s largest pharmacy networks, is now seen as fairly valued, with UBS lowering its price target slightly to CHF 83 from CHF 83.5.
The downgrade reflects concerns over medium-term risks, particularly the potential impact of regulatory changes on Galenica’s business.
UBS cited the planned liberalization of Switzerland’s over-the-counter (OTC) drug distribution by 2028 as a key factor that could lead to increased competition and pricing pressure from online retailers.
While the company is expected to see steady sales growth of around 4.3% annually through 2027, the regulatory shift could lead to a decline in revenue by 2028 before a gradual recovery.
UBS analysts also noted that the conclusion of an active flu season leaves limited near-term catalysts for further stock gains.
Additionally, Galenica’s dividend yield for 2026 is estimated at 3.0%, aligning closely with its historical average of 3.2%, suggesting that the stock already accounts for both upside and downside risks.
The company’s margins are projected to expand slightly over the next few years, with an adjusted EBIT margin reaching 6.1% by 2027.
However, UBS anticipates a decline in profitability in 2028 due to the expected drop in OTC sales. EBIT margins are forecasted to fall to 5.0% in 2028 before a modest recovery to 5.5% in 2029.
UBS used a reverse discounted cash flow analysis to determine that Galenica’s current share price already factors in the expected sales slowdown and margin pressures.
With the stock price reflecting these risks, UBS sees no strong reason to maintain a bullish outlook, leading to the downgrade.
The downgrade comes after Galenica’s recent full-year 2024 earnings report, which prompted UBS to revise its estimates. While the company’s fundamentals remain strong in the long run,
UBS now expects earnings per share for 2025 and 2026 to be 8% lower than previously forecasted.