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Emergent Stock Skyrockets 251% YTD: How to Play the Stock?
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Shares of Emergent BioSolutions (EBS - Free Report) have more than doubled in market cap so far this year, outperforming the industry’s 13% decline, as seen in the chart below. This surge in stock price started earlier this year after management announced several strategic changes to enhance profitability and stabilize its financial position. During the same period, the stock has also outperformed the broader Medical sector and the S&P 500. It is currently trading above its 200-day moving average.
EBS Stock Outperforms Industry, Sector & S&P 500
Image Source: Zacks Investment Research
Let’s delve into the company’s strengths and weaknesses to better understand how to play the stock amid this price surge.
Emergent’s Strategic Plan to Save $80M Annually in Costs
In May, management unveiled a new operational plan to drive long-term growth. As part of this plan, EBS announced several strategic operational changes, which included consolidating operations, closing the manufacturing facilities in Baltimore and Rockville, and reducing the workforce by 300.
Emergent also stated that it will focus on its core products, including medical countermeasures (MCMs) and Narcan nasal spray, while centralizing operations in Winnipeg, Canada, and Lansing, MI. A new Chief Science Officer role has been added to support strategic priorities as the company explores alternatives for other sites.
The company’s CEO Joe Papa emphasized the importance of stabilizing operations and strengthening the balance sheet to ensure sustainable success. Through the above actions, management targets annual savings of about $80 million in operational costs.
Cash Generation & Debt Reduction Drive EBS Stock
The intent behind Emergent’s execution plan seems clear – generate cash to increase profitability and reduce the company’s overall debt. During the year, management secured several contracts from the U.S. government (USG) to deliver millions of doses of its marketed products. These include contracts for Cyfendus (anthrax vaccine), ACAM2000 (smallpox vaccine), VIGIV (for treating complications to smallpox vaccination), BAT (for botulism) and Ebanga (for ebola).
Emergent has improved its financial health by selling facilities for $37 million and resolving a $50 million contract dispute with pharma giant J&J (JNJ - Free Report) . It has also completed the sale of the RSDL kit to SERB Pharmaceuticals for $75 million.
The company also strengthened its financial position by securing a new $250 million term loan from Oak Hill Advisors, extending debt maturity to August 2029. The proceeds were used to repay its prior credit facility (which was set to mature in May 2025), while excess funds added cash to the balance sheet.
Emergent’s Dependence on Government Funding: A Concern
EBS derives a substantial portion of its revenues from sales of its anthrax and smallpox vaccines to the USG, which the latter procures for the strategic national stockpile (SNS). These procurements are done under fixed-term contracts. Any loss of existing contracts or failure to get new or follow-on contracts may significantly hurt the company’s prospects.
Emergent also faces competition from several companies (like Bavarian Nordic and Regeneron) with Biodefense products or candidates under development for USG procurement and development resources. These competitions could reduce the demand for the company’s products, thereby lowering revenues, margins, profitability and loss of market share. These competitive pressures could adversely impact EBS’ operating results.
EBS Stock’s Valuation & Estimates
From a valuation standpoint, Emergent BioSolutions appears attractive compared to the industry. Going by the price/sales (P/S) ratio, the company’s shares currently trade at 0.42, trailing 12-month sales value, lower than 1.98 for the industry.
Image Source: Zacks Investment Research
Estimates for Emergent’s 2024 loss per share have remained consistent at $1.30 in the past 60 days. During this timeframe, estimates for 2025 earnings per share have also remained stable at $2.99.
Image Source: Zacks Investment Research
Stay Invested in EBS Stock
2024 was an interesting year for Emergent Biosolutions, as it finally managed to overturn the downward trajectory for the stock, which began in 2021 following the loss of the Bioservices contracts from AstraZeneca (AZN - Free Report) and J&J due to a mishap with their respective COVID-19 vaccines.
The appointment of CEO John Papa earlier this year has been a key driver of Emergent’s strong stock performance, sparking significant investor optimism. Known for his strong track record in leading business turnarounds, Papa's leadership has instilled confidence in the company’s strategic direction.
While we believe that the company’s dependence on the USG is a concern, we recommend investors to hold on to this Zacks Rank #3 (Hold) stock as it has demonstrated growth potential. At the beginning of this year, management implemented cost-saving measures, which have not only enhanced profitability but also reduced net debt by more than $200 million.
Image: Bigstock
Emergent Stock Skyrockets 251% YTD: How to Play the Stock?
Shares of Emergent BioSolutions (EBS - Free Report) have more than doubled in market cap so far this year, outperforming the industry’s 13% decline, as seen in the chart below. This surge in stock price started earlier this year after management announced several strategic changes to enhance profitability and stabilize its financial position. During the same period, the stock has also outperformed the broader Medical sector and the S&P 500. It is currently trading above its 200-day moving average.
EBS Stock Outperforms Industry, Sector & S&P 500
Let’s delve into the company’s strengths and weaknesses to better understand how to play the stock amid this price surge.
Emergent’s Strategic Plan to Save $80M Annually in Costs
In May, management unveiled a new operational plan to drive long-term growth. As part of this plan, EBS announced several strategic operational changes, which included consolidating operations, closing the manufacturing facilities in Baltimore and Rockville, and reducing the workforce by 300.
Emergent also stated that it will focus on its core products, including medical countermeasures (MCMs) and Narcan nasal spray, while centralizing operations in Winnipeg, Canada, and Lansing, MI. A new Chief Science Officer role has been added to support strategic priorities as the company explores alternatives for other sites.
The company’s CEO Joe Papa emphasized the importance of stabilizing operations and strengthening the balance sheet to ensure sustainable success. Through the above actions, management targets annual savings of about $80 million in operational costs.
Cash Generation & Debt Reduction Drive EBS Stock
The intent behind Emergent’s execution plan seems clear – generate cash to increase profitability and reduce the company’s overall debt. During the year, management secured several contracts from the U.S. government (USG) to deliver millions of doses of its marketed products. These include contracts for Cyfendus (anthrax vaccine), ACAM2000 (smallpox vaccine), VIGIV (for treating complications to smallpox vaccination), BAT (for botulism) and Ebanga (for ebola).
Emergent has improved its financial health by selling facilities for $37 million and resolving a $50 million contract dispute with pharma giant J&J (JNJ - Free Report) . It has also completed the sale of the RSDL kit to SERB Pharmaceuticals for $75 million.
The company also strengthened its financial position by securing a new $250 million term loan from Oak Hill Advisors, extending debt maturity to August 2029. The proceeds were used to repay its prior credit facility (which was set to mature in May 2025), while excess funds added cash to the balance sheet.
Emergent’s Dependence on Government Funding: A Concern
EBS derives a substantial portion of its revenues from sales of its anthrax and smallpox vaccines to the USG, which the latter procures for the strategic national stockpile (SNS). These procurements are done under fixed-term contracts. Any loss of existing contracts or failure to get new or follow-on contracts may significantly hurt the company’s prospects.
Emergent also faces competition from several companies (like Bavarian Nordic and Regeneron) with Biodefense products or candidates under development for USG procurement and development resources. These competitions could reduce the demand for the company’s products, thereby lowering revenues, margins, profitability and loss of market share. These competitive pressures could adversely impact EBS’ operating results.
EBS Stock’s Valuation & Estimates
From a valuation standpoint, Emergent BioSolutions appears attractive compared to the industry. Going by the price/sales (P/S) ratio, the company’s shares currently trade at 0.42, trailing 12-month sales value, lower than 1.98 for the industry.
Estimates for Emergent’s 2024 loss per share have remained consistent at $1.30 in the past 60 days. During this timeframe, estimates for 2025 earnings per share have also remained stable at $2.99.
Stay Invested in EBS Stock
2024 was an interesting year for Emergent Biosolutions, as it finally managed to overturn the downward trajectory for the stock, which began in 2021 following the loss of the Bioservices contracts from AstraZeneca (AZN - Free Report) and J&J due to a mishap with their respective COVID-19 vaccines.
The appointment of CEO John Papa earlier this year has been a key driver of Emergent’s strong stock performance, sparking significant investor optimism. Known for his strong track record in leading business turnarounds, Papa's leadership has instilled confidence in the company’s strategic direction.
While we believe that the company’s dependence on the USG is a concern, we recommend investors to hold on to this Zacks Rank #3 (Hold) stock as it has demonstrated growth potential. At the beginning of this year, management implemented cost-saving measures, which have not only enhanced profitability but also reduced net debt by more than $200 million.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.