Previously, GSCO had been below consensus, assuming that the US cholesterol business would fall 20% in 2008, and recover in 2010. They are now moving to a more prolonged fall, with US cholesterol sales down 24% in 2008, 20% in 2009, 10% in 2010, and 5% thereafter to 2012. They are lowering their estimates, with 2008-2012E EPS now $1.40, $1.46, $1.64, $1.80 and $2.11 from $1.37, $1.52, $1.77, $2.01, $2.39 (2008 rises slightly due to currency adjustments). This new set of estimates reflects modest reductions in SG&A to account for decreasing US promotion.
GSCO is lowering their 12-month price target to $23 (from $28), based on relative P/E and DCF methodology (70%/30% weighting). While they believe that Merck and Schering-Plough will work hard to support the product, the negative revision bias will remain high. Uncertainty around the IMS trends will likely leave the shares range-bound. In the mid- to high teens, they believe that the shares will have priced in the removal of Zetia and Vytorin from the model, and this valuation could represent a floor.
Notablecalls: At around $15 I rate SGP a Strong Buy. GSCO's dg is just make-up.