Organon & Co. (OGN) is a pharmaceutical company that was spun off from Merck (MRK) in June of 2021, recalls Ben Reynolds, dividend specialist and editor of Sure Retirement.

Organon is a pharmaceutical company that develops and markets health solutions in a variety of areas. The company’s established brands portfolio consists of nearly 50 products that have lost patent exclusivity and are used for treatment in the areas of cardiovascular, respiratory, dermatology, and non-opioid pain management.

The women’s health portfolio includes fertility and contraception brands, such as Nexplanon/Implanon and NuvaRing. The company also has a small portfolio of biosimilars which are used in immunology and oncology. The spinoff resulted in 15% of annual revenue, 25% of manufacturing sites, and 50% of products being transferred from Merck to Organon.

Organon released third-quarter results on November 3rd, 2022. Revenue decreased 3.8% to $1.54 billion while adjusted earnings-per-share fell from $1.67 to $1.32. Both results topped estimates, however.

Organon offered revised guidance for 2022 as well, with the company now expecting revenue of $6.1 billion to $6.2 billion, down from prior guidance of $6.1 billion to $6.3 billion. We project that the company will now earn $4.93 per share in 2022, down from $4.95 previously.

Organon  is a leader in its area of healthcare, a sector that is typically more recession resistant. The company’s established brands business doesn’t have to contend with a patent cliff that most pharmaceutical companies do as their products have already lost exclusivity.

As a very young independent company, Organon has not yet been tested during a recession. Still, we believe that Organon will likely navigate a recession successfully as its product portfolio can largely be considered recession resistant.

Given the relative newness of the company at this point, we forecast earnings-per-share growth of 3% through 2027 for Organon. The high number of products within the establish brands business, plus the addition of future off patent drugs such Humira, and the strength of the women’s health business should provide tailwinds to results going forward.

Shares are trading hands at just 5.1 times our earnings estimate of 2022 earnings. Our fair value multiple is 7.0 times earnings, indicating the potential for a 6.7% annual tailwind from the valuation. When combined with the 4.5% yield and 3.0% growth, annual total returns could be 13%.

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