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According to the firm, it no longer perceives a low-risk opportunity for EPS upside and believes the recent re-rating has already accounted for a sustained higher level of market outgrowth.
While the firm expects the company to maintain its HighTouch gross margin and MSD market outgrowth, it highlighted several challenges ahead. According to UBS, these tailwinds are now accounted for in both the forward estimates, which have increased by 25% over the last twelve months, and the valuation (1 SDEV premium).
Key performance indicators (gross margin and market outgrowth) are anticipated to decrease in the upcoming quarters, which poses a risk considering that the equity has recently been re-rated to historic highs.
UBS sees the company’s HighTouch price easing and aligning with the PPI by the end of 2023. This will likely result in year-over-year declines in gross margin starting in Q3, which has historically affected equity performance.
