On Wednesday, BMO Capital has updated its outlook on Schrodinger (NASDAQ:SDGR) shares, a company specializing in chemical simulation software for pharmaceutical research. The firm has increased the price target on the company's shares to $28.00, up from the previous $25.00, while maintaining an Outperform rating.
The adjustment comes after Schrodinger reported a satisfactory commercial quarter. The company's software revenue showed a 10% year-over-year increase, which helped to balance out the softer drug discovery revenues. The latter was affected by the timing of certain milestones.
The recent announcement of an expanded software agreement and drug development collaboration with Novartis (SIX:NOVN) has been identified as a key factor in bolstering investor confidence. This partnership is expected to support Schrodinger's commercial execution and is a significant development as the market looks forward to clinical readouts anticipated in 2025.
The upgraded price target to $28 reflects a more optimistic long-term outlook for Schrodinger's software and drug discovery business. This reassessment is attributed to the positive impact of the latest news and the company's potential moving forward.
BMO Capital's stance is buoyed by the company's current performance and strategic moves, suggesting a solid trajectory for Schrodinger in the pharmaceutical software and drug discovery sectors.
In other recent news, Schrödinger, Inc. experienced a dip in its Q3 revenue for 2024, with total revenue decreasing by 17% year-over-year to $35.3 million. This decline was largely due to a significant drop in drug discovery revenue, which fell to $3.4 million from $13.7 million in the same quarter the previous year.
On a brighter note, the company announced a substantial collaboration with Novartis, comprising a $150 million upfront payment and potential milestone payments that could reach up to $2.3 billion, plus royalties on sales.
Schrödinger's software revenue demonstrated resilience, growing by 10% to $31.9 million, although it fell short of expectations due to slower activity in predictive toxicology. Operating loss widened to $68.4 million, while the net loss improved to $38 million from $62 million last year. The company has also raised the lower end of its software revenue growth guidance for the year.
In terms of future expectations, Schrödinger has narrowed its software revenue growth projection to 8%-13%. The Novartis deal is expected to modestly contribute to drug discovery revenue in 2025 as project teams become operational. These developments are part of Schrödinger's ongoing commitment to its clinical programs and to maintaining its trajectory in the competitive drug discovery and computational chemistry landscape.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on Schrodinger's (NASDAQ:SDGR) financial position and market performance, complementing BMO Capital's optimistic outlook. The company's market capitalization stands at $1.62 billion, reflecting its significant presence in the chemical simulation software industry.
InvestingPro Tips highlight that Schrodinger holds more cash than debt on its balance sheet, indicating a strong financial position that could support its ongoing research and development efforts. This aligns with the company's focus on software and drug discovery, as mentioned in the article. Additionally, Schrodinger has shown a significant return over the last week, with a 17.29% price increase, and a strong 25.92% return over the last month, potentially reflecting positive market sentiment following the expanded agreement with Novartis.
However, it's worth noting that Schrodinger's stock price movements are quite volatile, and analysts do not anticipate the company to be profitable this year. This information provides context to BMO Capital's Outperform rating and increased price target, suggesting that while the company shows promise, it may still face near-term challenges.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips that could provide further insights into Schrodinger's financial health and market position.
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