Deutsche Bank downgraded Sandoz to "hold" from "buy" on Friday while increasing its price target to CHF70, up 11% from CHF63. The bank said the change reflects a much higher valuation level that follows a near-doubling of the shares since its upgrade to "buy" just under a year ago, and noted the stock fell more than 2% on the news.
Analyst Emmanuel Papadakis pointed out the stock last closed at CHF70.34 and now trades at 23x FY26 price-to-earnings. He said that multiple appears to already incorporate both a supportive policy backdrop and the expected FY26 acceleration in biosimilar growth, but not the likely slowdown anticipated in FY27. The revised CHF70 target is based on 22x FY26 P/E, according to the note.
Deutsche Bank characterized Sandoz’s fourth-quarter results as largely uneventful but nevertheless highly well received by the market. The brokerage added that the earnings call was solid and that adjustments to estimates after the results were minimal.
Papadakis emphasized the recent price performance, noting the stock has doubled since Deutsche Bank upgraded it on March 12, 2025. He said that increase was driven almost entirely by expansion of the valuation multiple rather than by earnings growth. "We see limited room for positive earnings revisions in the short term," he added, and cautioned that while the thematic investment case retains appeal, the stock has moved into a different valuation bracket.
The note also raised specific operational and cash-flow flags. Deutsche Bank flagged the company’s business mix and lagging cash flow conversion as concerns, observing that Sandoz’s free cash flow yield remains in low-single-digit percentage territory. That metric underpins the brokerage’s view that the current valuation may not sufficiently account for an expected slower FY27 following FY26’s biosimilar step-up.
Context and implications
- The downgrade and target increase reflect a recalibration of upside potential rather than a view that fundamentals have suddenly deteriorated.
- Deutsche Bank’s analysis centers on valuation expansion, limited near-term earnings upgrade potential, and constrained free cash flow conversion.
- The brokerage expects FY27 to be a slower year after FY26’s projected growth boost from biosimilars.