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Understanding Sanofi’s Discounted Valuation

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Valuation

On September 8, 2016, Sanofi (SNY) was trading at a forward PE (price-to-earnings) multiple of 12.17x. Sanofi appeared be trading at a greater discount as compared with peers Eli Lilly (LLY), Merck & Company (MRK), and Novo Nordisk (NVO), which were trading at 17.8x, 15.4x, and 16.9x, respectively, their forward earnings.

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Performance of the valuation multiple 

Sanofi’s average PE over the past two years stood at 13.7x, while its median PE stood at 13.6x its forward earnings. Its multiple has ranged from 12x–17x of its forward earnings over the past two years.

Sanofi’s current valuation multiple thus appears to be trading at a greater discount than its previous two-year range. The fall in the valuation multiple has followed pressure from its diabetes franchise and its underperforming top line.

Sanofi’s valuation catalysts

The FDA’s (Food and Drug Administration) approval of LixiLan and sarilumab might serve as near-term valuation catalysts for Sanofi. (For more information on these under review drugs, please read “2016’s Estimated Product Launches: LixiLan, Sarilumab, Lixisenatide.”)

On July 28, 2016, Adlyxin, or lixisenatide, a GLP-1 (glucagon-like peptide-1) drug, won FDA approval for treating Type 2 diabetes in adults. However, with no dosing advantage or proved cardiovascular risk reduction, there won’t be any advantages for the drug against competing drugs like Novo’s Victoza and Eli Lilly’s Trulicity and Jardiance.

What’s the deal with Boehringer Ingelheim?

With recent asset swap deal with Boehringer Ingelheim, Sanofi freed up cash and further expanded in Consumer Healthcare business. (For details on this value-creating deal, please read “Analyzing Sanofi’s Asset Swap Deal with Boehringer Ingelheim.”)

Another near-term potential valuation catalyst is SNY’s Zika virus vaccine project, which could cause a rise in its share price. If you invest in First Trust Value Line Dividend Index Fund (FVD), you can get some exposure to Sanofi. FVD has 0.53% of its total portfolio in Sanofi.

Continue to the next part of this series for a look at Sanofi’s expected performance in 2016 and 2017.

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