Sanofi Boasts a Dividend Yield of 5.4%, Trades Below 9x Earnings, and Just Got an FDA Win. Are Income Investors Missing a Rare Opportunity?
Key Points
The FDA just approved the company's on-body injector for its blood cancer drug.
Analysts see upside potential ahead for shares of the French pharmaceutical giant.
For income investors, there's a solid stock that pays a handsome dividend and, due to a recent decline in its share price, is trading at a bargain-basement price. I'm talking about Sanofi (NASDAQ: SNY), the French multinational pharmaceutical that is focused on immunology, vaccines, and rare diseases.
The stock pays a $0.61 quarterly dividend, yielding about 5.4% (the annual dividend divided by the share price). That's a handsome yield by any measure. And when you factor in the impact of the company's stock buybacks, that yield rises to near 11%. And the company has raised its dividend for 30 consecutive years, making it a member of the European Dividend Aristocrats® (a registered trademark of Standard & Poor's Financial Services LLC).
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And yet, Sanofi's share price is down about 6.5% this year. Part of that is because the drugmaker canceled several major late-stage programs, raising valid investor concerns about its drug pipeline. Does that spell opportunity now for investors? Let's see.
Sanofi beat revenue and earnings expectations in the most recent quarter
But the company recently posted strong second-quarter results. It earned $1.22 a share on revenue of $13.48 billion, both of which beat analysts' expectations. And sales of its blockbuster immunology drug, Dupixent, climbed 38% to 5.15 billion euros, surpassing 5 billion euros in a quarter for the first time.
But investors considering Sanofi's shares need to look forward, not back. And the company just got some very good news: In July, the U.S. Food and Drug Administration (FDA) approved the company's on-body injector for isatuximab, sold under the brand name Sarclisa, which treats multiple myeloma, a type of bone marrow and blood cancer.
As a result, the stock has rebounded in recent weeks and is up about 6% so far in August.
Image source: Getty Images.
Wall Street thinks it can continue to climb. The average analyst price target for the stock is $53.72, representing a nearly 18% gain from the current share price. Of the 10 analysts who follow the stock, five rate it a "Buy" and five a "Hold."
And the stock is inexpensive right now, trading at slightly more than nine times forward earnings. Consider that major drugmakers like Eli Lilly (NYSE: LLY), Merck (NYSE: MRK), and Johnson & Johnson (NYSE: JNJ) are all trading at more than 20 times forward earnings.
So, for investors looking for stocks trading cheaply relative to peers that deliver a strong dividend yield and have potential for future price appreciation, Sanofi right now checks all the boxes.
Matthew Benjamin has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Eli Lilly and Merck. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.