It doesn’t make sense, really. Organon (NYSE:OGN) was recently spun off from pharmaceutical giant Merck (NYSE:MRK), so you’d think Wall Street would be buzzing about OGN stock.
Yet somehow Wall Street’s analysts already seem bored with Organon, and the trading community hasn’t moved its share price very far in either direction.
Moreover, after less than a month on the NYSE, OGN stock is trading below its initial public offering (IPO) price. Has the market’s attention span gotten so short that investors can’t focus on a company for more than a few weeks?
I can stay on my soapbox all day long, but that won’t change anything. Instead, I’ll discuss this stock that represents a prime buying opportunity in the pharma sector; it’s an underappreciated gem for folks who don’t get distracted by the latest shiny object.
A Closer Look at OGN Stock
InvestorPlace contributor Mark R. Hake provided the essential data on Organon’s IPO.
So please, go check out Hake’s article. He presents a compelling argument as to why OGN stock should reach $52.77.
In any case, Hake observed that Organon’s shares had become available to the public on June 3.
Technically speaking, it wasn’t your run-of-the-mill IPO. The way it worked was, Merck shareholders received one-tenth of a share of Organon common stock for every Merck common share that they owned as of the close of business on May 17.
But if you didn’t acquire the shares that way, you can just buy them through many different brokers on the New York Stock Exchange now.
Traders showed some love for Organon, but only very briefly. Its share price topped $37 on June 3, but then slid to $30 over the ensuing days.
The following weeks were marked by listless price action as OGN stock clung to the $30 level. It closed at $29.53 yesterday.
Frankly, I expected much more from investors. I mean, we’re talking about a unit spun off from Merck. That should have been the event of the year for pharmaceutical investors!
Moreover, Wall Street analysts seem to be sleeping on this one.
For instance, Goldman Sachs analyst Terence Flynn initiated coverage of Organon with a “neutral” rating. But hey, at least Flynn offered a price target of $35, which implies some gains by the shares.
Meanwhile, Cowen analyst Steve Scala initiated his coverage of OGN stock with a “market perform,” which is a fancy version of a “neutral” rating.
Yet Scala’s price target is fairly ambitious at $40. Sometimes the quantitative assessments speak louder than the qualitative ones.
I hate to say it, but I suspect that the ho-hum response is being caused by Organon’s focus on women’s health.
Significant Unmet Needs
Wall Street should care about this market segment more than it seems to.
Even from a pure profit angle, there are plenty of reasons to pay attention to this sector. Merck’s Organon-focused slide deck underscores the significant unmet needs in the space and the profound market opportunity they create. Specifically:
- 45% of pregnancies are unintended
- 10 million women suffer from severe peri- and post-menopausal
- 26 million women suffer from uterine fibroids – and less than
20% are diagnosed and treated
- 1 in 10 pre-menopausal women have endometriosis, yet less than half are diagnosed and treated
Organon helps to address these pressing issues with an array of commercialized products.
One of these is the implantable contraceptive Nexplanon, which can prevent pregnancy for up to three years.
As a stand-alone company, Organon is “positioned to deliver low to mid-single digit (percentage) revenue growth off (the)2021 base,” Merck estimated.
So Organon can be profitable for its investors as it executes on its vision in a niche market that deserves significantly greater attention.
The Bottom Line
I suspect that Wall Street analysts and investors will regret their tepid reaction to OGN stock’s debut.
Until then, the stock will remain a hidden gem. Some folks might not care about Organon today, but they’ll see its value when its share price is much higher.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.