Stock of the week: Sanofi

Summary

- Price of Sanofi shares increased over 10% since the beginning of August
- Upbeat analysts’ outlook keeps the stock buoyed
- New executive with a track record of improving efficiency
- The stock broke above the long-term resistance zone

Sanofi (SAN.FR), the French pharmaceutical company, has been enjoying a strong upward move recently. Rally accelerated this week and led to a break above the upper limit of the long-term trading range. In this short analysis we will take a look at factors behind stock’s good performance and try to determine the closest price levels to watch.

Sanofi experienced margin deterioration in the aftermath of the global financial crisis. However, the situation began to improve in 2014 and now gross margin sits near the top of the recent range. Source: Bloomberg, XTB Research

Share price of Sanofi (SAN.FR) swung in the €72-80 range for over a year and lacked catalyst for a break higher or lower. Earnings report for the first half of the year was decent. Report for the January-June period showed that sales rebounded this year after dropping unexpectedly in 2018. Pharmaceuticals business segment remained core of company’s operations but it was Vaccines segment that grew the most (24.4% YoY). The company even decided to raise EPS guidance for the year. A few recommendation upgrades followed the release and allowed the stock price to bounce off the lower limit of the trading range.

The upward move brought the stock price to the 50% Fibo level of the downward move started in May 2017 (€78), where bulls began to struggle. However, Paul Hudson took over the role of company’s CEO at the beginning of September and his appeal for technologies caused investors to pull the trigger once again. Hudson worked at Novartis earlier, the Swiss pharmaceutical giant, where he pushed for higher use of new technologies in marketing and research divisions. Those efforts helped the company reduce costs and boost revenue. Stock delivered a break above the upper limit of the trading range this week being fuelled by hopes of new CEO accelerating Sanofi’s growth.

Analysts remain upbeat about Sanofi with median price target sitting around 8% above the current price. Source: Bloomberg

While Sanofi rallied over 10% since the beginning of August 2019, the stock price still remains below analysts’ median estimate. Out of 29 analysts followed by Bloomberg, not a single one recommends selling the stock. 18 out of the 29 recommendations are “buy” ratings while the remaining 11 are “hold” ratings. Consensus price target sits at €87.80.

Technical Outlook

Taking a look at Sanofi chart from the long-term perspective (MN interval), one can see that the price zones marking limits of the recent trading range saw several price reactions over the past 15 years. A point to note is that even before breaking out of the trading range, the stock managed to overcome the downward sloping trendline, what could have played a role in the acceleration of the recent upward move. The long-term level to watch is marked by highs from September-October 2013 and May 2017 (€88.50) and is not far above the analysts’ median consensus of €87.80. 

Source: xStation5

Moving onto a lower time frame (D1), one can see that following a break out of the trading range the upward move eased in the vicinity of the 61.8% Fibo level of the downward move started in May 2017. Given how steep was the recent rally, a pullback and retest of the breakout zone may be on the cards now. In such a scenario, traders should look for a signal near the breakout zone. The 61.8% Fibo level should act as a near term resistance while the next level to watch is marked with the 78.6% Fibo level and the local peak from October 2017 (€86.50).

Source: xStation5