Organon (NYSE:OGN) has been one of the most popular stocks among Zacks.com visitors recently, so it's a good idea to take a look at some factors that could impact the stock's near-term performance.
Over the past month, shares of this pharmaceutical company have returned -5.1% compared to a +3.1% change for the Zacks S&P 500 Composite Index. During that same period, the Zacks Medical Services industry, which Organon belongs to, has gained 0.9%.The key question here is what the future holds for this stock?
While media reports or rumors about major changes in a company's business outlook usually set off trends in that stock, leading to immediate price movements, there are always certain fundamental factors that ultimately prompt a buy-and-hold decision.
Earnings forecast revision
At Zacks, we prioritize evaluating the changing earnings estimates for companies, rather than focusing on other things, because we believe the fair value of a stock is determined by the present value of its future earnings stream.
It essentially looks at how sell-side analysts covering the stock are revising their earnings forecasts to reflect the impact of the latest business trends. As a company's earnings forecasts rise, so does the fair value of its stock. If the fair value is higher than the current market price, investors will be interested in buying the stock, driving the share price up. This is why empirical studies have shown a strong correlation between trends in earnings forecast revisions and short-term stock price movements.
For the current quarter, Organon is projected to post earnings of $1.18 per share, which would represent a 9.9% decrease from the year-ago period. The Zacks Consensus Estimate has remained unchanged within the past 30 days.
The consensus earnings estimate for the current fiscal year is $4.42, indicating a change of +6.8% year over year. This estimate has not changed in the past 30 days.
Looking at the next fiscal year, the consensus earnings estimate is $4.56, which would represent a 3% increase from what Organon was expected to report a year ago, with estimates unchanged over the past month.
The Zacks Rank, our proprietary stock rating tool with a strong outside-audited track record, effectively harnesses the power of earnings estimate revisions to provide a more certainty view into near-term stock price direction. The magnitude of the recent change in consensus estimates, along with three other factors related to earnings estimates, have earned Organon a Zacks Rank #1 (Strong Buy).
The chart below shows the evolution of the company's consensus EPS estimates over the next 12 months.
12 Month EPS
Projected Revenue Growth
Revenue growth is arguably the best indicator of a company's financial health, but if a company can't grow its revenue, then nothing happens. After all, it's nearly impossible for a company to grow its revenue over the long term without growing its revenue. Therefore, it's important to know a company's revenue growth potential.
For Organon, the consensus revenue estimate for the current quarter is $1.63 billion, indicating a change of +1.2% year-over-year. For the current and next fiscal years, estimates of $6.37 billion and $6.37 billion indicate changes of +1.7% and +0%, respectively.
Last reported results and surprise history
Organon reported revenue of $1.62 billion in its most recent quarter, up 5.5% from the same period a year ago. EPS for the quarter was $1.22, up from $1.08 a year ago.
Compared to the Zacks Consensus Estimate of $1.57 billion, reported revenues represented a surprise of +3.44%. EPS surprise was +25.77%.
Over the last four quarters, Organon has surpassed consensus EPS estimates three times, and the company has also surpassed consensus estimates for revenue three times during that period.
evaluation
No investment decision can be efficient without taking into account stock valuation. Whether a stock's current price properly reflects the intrinsic value of its business and the company's growth prospects is a key factor in determining future stock price movements.
Comparing the current value of a company's valuation multiples such as Price to Earnings (P/E), Price to Sales (P/S) and Price to Cash Flow (P/CF) with the company's historical values ​​helps in determining whether the stock is fairly valued, overvalued or undervalued, while comparing a company with its peers on the basis of these parameters gives a good sense of the fairness of the stock's valuation.
The Zacks Value Style Score, a part of the Zacks Style Scores system, evaluates both traditional and non-traditional metrics, categorizes stocks into five groupings from A to F (A is better than B, B is better than C, etc.) to help identify whether stocks are overvalued, fairly valued or temporarily undervalued.
Organon is rated an A on this front, indicating that it is trading at a discount relative to its peers.
To read this article on Zacks.com click here.
