Grifols’ Worst-Ever Year Can’t Derail Analyst Calls to Buy
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(Bloomberg) -- Most analysts are sticking with their calls to buy Spanish drugmaker Grifols SA as one of the favored picks of short sellers heads for its worst year on record.
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More than two-thirds of analysts tracked by Bloomberg have a buy or equivalent rating on the stock, after a year in which concerns about the company’s debt burden and strategy have prompted an almost 40% slide in its shares.
While Grifols is the most-shorted in the 55-member Stoxx 600 Health Care Index, it’s becoming harder to ignore just how cheap the stock has become. The shares trade at about 11 times expected earnings, roughly 30% below the subindex.
“It has been a horrible year for the shares, which could have jeopardized the company’s continuity,” Patricia Cifuentes, an analyst at Bestinver Securities, said in an interview. “There has been a lot of noise, but operationally, the company has delivered on the targets set.”
Grifols declined to comment on this year’s share-price decline and elevated short interest.
The year’s woes began in January when short seller Gotham City Research published a report criticizing the drugmaker’s corporate governance and financial accounts. Spain’s regulator said more than eight months later it would fine the firm for sharing “misleading” information in various financial reports. The regulator has also opened disciplinary proceedings against Gotham for alleged market manipulation.
Since the Gotham report, Grifols has been taking steps to quell investor concerns. Nacho Abia took over as chief executive officer in April, following the board’s decision to remove all family members from executive positions. And just this week, Grifols raised €1.3 billion ($1.4 billion) in a private debt placement, in an attempt to reassure investors that the company can control its leverage ratios and focus on cash generation.
For Bank of America analyst Graham Parry, Grifols’ underlying recovery is “undervalued,” while the Spanish regulator’s investigation noting no major accounting issues suggests “further issues are unlikely.” As the company’s sales and earnings recover, “we expect cashflow to follow,” he said in a note.
Analysts are broadly optimistic on the company. Among those tracked by Bloomberg, 13 have a buy rating or equivalent, four recommend holding the stock and two say sell. Twelve-month price targets compiled by Bloomberg suggest analysts see the stock rising more than 60% on average from current levels.