Emergent BioSolutions (EBS) is a life sciences company with a focus on serving civilian and military clients by providing solutions for public health threats.
The main value for EBS comes from its diversified product portfolio and pipeline, alongside its CDMO services that address public health threats. As a trusted partner to governments, NGOs, and major pharmaceutical and biotech innovators, it commands a leadership position in key public health threat markets.
The company operates four business units: vaccines, therapeutics, devices, and CDMO (contract development and manufacturing) services. The company estimates that it has a global total addressable market of over $50 billion which, compared to its current market cap of just $3.3B, gives it significant upside potential if it can successfully grow market share. (See Emergent Biosolutions stock chart on TipRanks)
The company offers solutions for severe diseases such as Anthrax, Smallpox, chemical agents, opioid abuse, Botulism, as well as diseases common in developing countries, such as Cholera and Typhoid. Meanwhile, its R&D pipeline is full of vaccines, therapeutics, and devices that all offer considerable potential to spur significant growth for the company in the future.
Negative Catalysts
Despite these strengths, the company has recently gone through a tough period that has seen its share price cut in half, due to a cross-contamination mistake at one of its facilities. This caused its production of millions of COVID-19 vaccines to halt temporarily, and the negative headlines that came along with it crushed the stock.
Meanwhile, it has emerged that the company may have won these federal vaccine contracts through corrupt means, especially given that the company does have a track record of committing regulatory and safety violations.
Valuation Metrics
That said, the stock losing half of its market cap seems a bit excessive, given that the blunder did not have a major impact to the company’s immediate bottom line. In fact, the forward price to earnings ratio is 8, which is well below its long-term average of 18.6x.
Given Emergent BioSolutions’ strong market position, fortress balance sheet, attractive returns on equity, and bullish long-term growth outlook, the stock appears attractively valued at the moment.
Wall Street’s Take
From Wall Street analysts, EBS earns a Moderate Buy analyst consensus based on 4 Buy ratings, 3 Hold ratings, and 0 Sell ratings in the past 3 months. Additionally, the average analyst Emergent Biosolutions price target of $89.67 puts the upside potential at a sizable 46.8%.
Summary and Conclusions
EBS is coming out of a tough patch due to negative headlines and circumstances surrounding its production of COVID-19 vaccines for the government. That said, the company has a lot going for it: a fortress balance sheet, strong growth drivers, a leading market position, and a historically cheap valuation.
Additionally, Wall Street analysts are overall bullish on the stock. Last but not least, the majority of its income derives from government contracts, making the stock remarkably defensive to economic downturns. The contracts are likely to generate stable cash flows for years to come, even in a worst case scenario.
Overall, this stock might make for an attractive buy given its discounted valuation, numerous strengths, and the strong analyst sentiment behind it.
Disclosure: On the date of publication, Samuel Smith had no position in any of the companies discussed in this article.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
