Investing.com — Shares in Hims Hers Health Inc (NYSE:HIMS) fell Friday after Citigroup (NYSE:C) analysts downgraded the stock to Sell/High Risk, citing overvaluation concerns tied to its GLP-1 revenue stream.
The stock slid more than 3% in the premarket trade.
In its latest report, Citi analysts highlight multiple risks to the company’s business model, particularly in the weight-loss category, where regulatory changes and market dynamics could significantly weigh on growth.
A core issue lies in the anticipated decline of HIMS’ GLP-1 revenues, with Citi projecting a sharp drop from $400 million in FY2025 to $135 million. This decline is linked to the FDA’s recent decision to remove Tirzepatide from the drug shortage list, restricting the bulk compounding of GLP-1 formulations under the 503A exemption.
Citi warns that a similar decision regarding Semaglutide, expected within the next 12 months, could further constrain HIMS’ ability to offer compounded GLP-1 treatments.
“With Tirzepatide now officially the shortage list, we think it is more likely that not that Semaglutide is removed in the next 12 months,” Citi analysts said. “If this were to happen, HIMS weight loss market would be significantly constrained as they would only be able to compound GLP-1s by changing the formulation for the specific clinical benefit of an individual.”
Citi also raises concerns about growing competition in the direct-to-consumer healthcare market.
Large pharmaceutical companies, tech giants, and established platforms are expanding their presence, driving increased customer churn, pricing pressure, and persistently high customer acquisition costs for companies like HIMS. This heightened competition could weaken HIMS’ non-GLP-1 business and add further pressure on its financial performance.
On valuation, analysts point out that HIMS is trading at an enterprise value-to-EBITDA multiple of 18.7x for CY2026, higher than its peers, despite mounting risks to its business model.
The firm argues that this valuation fails to adequately reflect the challenges ahead, including regulatory uncertainty, intensified competition, and potential margin compression.
The durability of HIMS’ weight-loss offerings remains a focal point for 2025, particularly as the Trump administration’s stance on Semaglutide shortages evolves. While less likely to remove Semaglutide from the shortage list, some regulatory changes are anticipated.
Citi acknowledges HIMS’ efforts to strengthen its weight-loss business. For 2025, the firm forecasts 47% revenue growth, driven by a 170% surge in GLP-1 revenue, reaching $400 million, alongside a ~30% increase in non-GLP-1 revenue.
However, the mix shift to lower-margin GLP-1s and intensified competition are expected to compress gross margins by 90bps, partially offset by 130bps of adjusted EBITDA margin expansion from operating expense leverage.
