On Wednesday, Morgan Stanley (NYSE:MS) analysts adjusted their stance on Lonza Group (LONN:SW) (OTC: LZAGY), downgrading the stock from Overweight to Equalweight, while increasing the price target to CHF625 from CHF600. The new rating reflects the firm's view that the current valuation now fully encompasses the company's strong growth prospects.
The revision follows Lonza's December 2024 Capital Markets Day and the full-year 2024 results released in January 2025, which reinforced the company's positive outlook and its anticipated double-digit growth. These factors are now believed to be accounted for in the stock's current pricing.
Analysts at Morgan Stanley noted that consensus estimates have not yet adjusted downward to align with the company's new growth algorithm. This misalignment suggests that there may be less room for future earnings upgrades, which can often drive stock performance. Additionally, the analysts highlighted that growth in the contract development and manufacturing organization (CDMO) sector is highly capital intensive.
Lonza's stock has been trading above the higher end of its historical range of 15-20 times next twelve months (NTM) enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA). This metric is a common valuation tool used to assess the market value of a company relative to its earnings potential.
The upgrade in the price target to CHF625 from CHF600, despite the rating downgrade, indicates that Morgan Stanley acknowledges the company's solid fundamentals and growth trajectory. However, the stock's current valuation, which surpasses historical norms, has led to a more cautious outlook on the potential for further stock appreciation.
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