BUSINESS
Eagle Pharmaceuticals, Inc., a pharmaceutical company, focuses on developing and commercializing product candidates to treat diseases of the central nervous system or metabolic critical care, and oncology in the United States. The company offers Ryanodex for malignant hyperthermia; and Belrapzo and Bendeka for chronic lymphocytic leukemia and indolent B-cell non-Hodgkin’s lymphoma. Its product candidates also include EP-4104, a dantrolene sodium to treat organophosphate exposure; PEMFEXY, a ready-to-use/dilute liquid form of pemetrexed for non-small cell lung cancer and mesothelioma; EA-114 (fulvestrant) for HR+/HER- breast cancer; and Vasopressin injection, which is indicated to enhance blood pressure in adults with vasodilatory shock.
INVESTMENT RATING
Reflecting future returns on capital that are forecasted to be above the cost of capital, EGRX is expected to continue to be a modest Value Builder.
Eagle Pharmaceuticals has a current Value Trend Rating of C (Neutral).
With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing very contradictory signals. Eagle Pharmaceuticals has a very high Appreciation Score of 97 but a very low Power Rating of 7, resulting in the Neutral Value Trend Rating.
Eagle Pharmaceuticals’ stock is selling well below targeted value. The current stock price of $5.73 compares to targeted value 12 months forward of $47.
Eagle Pharmaceuticals’ very high appreciation potential results in an appreciation score of 97 (only 3% of the universe has greater appreciation potential.)
Eagle Pharmaceuticals has a Power Rating of 7. (This very low Power Rating indicates that EGRX only has a better chance of achieving attractive investment performance over the near to intermediate term than 7% of companies in the universe.)
Factors contributing to this very low Power Rating include: recent price action has been extremely unfavorable; and the Pharmaceutical Preparations comparison group is in a slightly weakened position currently.
INVESTMENT PROFILE
EGRX’s financial strength is exceptional. Financial strength rating is 95.
Relative to the S&P 500 Composite, Eagle Pharmaceuticals Inc has moderate Value characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that EGRX is lower risk. Relative weaknesses include: low expected growth, low historical growth, and high earnings variability. EGRX’s valuation is low: low dividend yield, low P/E ratio, and low price/book ratio. EGRX has unusually low market capitalization.
CURRENT SIGNALS
Eagle Pharmaceuticals’ current operations are eroding. Return on equity is falling, reflecting: falling asset utilization; declining pretax margin; falling tax keep rate; and falling leverage.
Eagle Pharmaceuticals’ current technical position is mixed. The 200 day moving average is in a downtrend. The stock price is above its 200 day moving average.
ALERTS
Recent small negative changes in fundamentals have impacted Eagle Pharmaceuticals Inc (NASDAQ: EGRX): significant quarterly earnings deceleration occurred.
The stock is currently rated C.
On 3/12/24, Eagle Pharmaceuticals Inc (NASDAQ: EGRX) stock declined by -2.4%, closing at $5.73. However, this decline was accompanied by unusually low trading volume at 60% of normal. Relative to the market the stock has been extremely weak over the last nine months and has declined -8.9% during the last week.
CASH FLOW
In 2022, Eagle Pharmaceuticals experienced a very significant reduction in cash of -$42.3 million (-43%). Sources of cash were much lower than uses. Cash generated from 2022 EBITDA totaled +$106.4 million. Non-operating uses consumed -$28.9 million (-27% of EBITDA). Cash taxes consumed -$25.8 million (-24% of EBITDA). Re-investment in the business amounted to -$147.2 million (-138% of EBITDA). On a net basis, debt investors provided +$31.6 million (+30% of EBITDA) while equity investors supplied +$21.5 million (+20% of EBITDA).
EGRX’s Non-operating Income, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Eagle Pharmaceuticals Peer Group. In most years, Eagle Pharmaceuticals was in the lower quartile and top quartile. Currently, Eagle Pharmaceuticals is lower quartile at -27% of EBITDA (-$28.9 million).
EGRX’s Cash Taxes, %EBITDA experienced a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Eagle Pharmaceuticals Peer Group. In most years, Eagle Pharmaceuticals was in the top quartile and lower quartile. Currently, Eagle Pharmaceuticals is lower quartile at -24% of EBITDA (-$25.8 million).
EGRX’s Business Re-investment, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Eagle Pharmaceuticals Peer Group. In most years, Eagle Pharmaceuticals was in the top quartile and lower quartile. Currently, Eagle Pharmaceuticals is substantially below median at -138% of EBITDA (-$147.2 million).
EGRX’s Debt Investors, %EBITDA has experienced a very strong overall downtrend over the period. This downtrend was accompanied by a similar trend for the Eagle Pharmaceuticals Peer Group. In most years, Eagle Pharmaceuticals was in the top quartile and third quartile. Currently, Eagle Pharmaceuticals is upper quartile at +30% of EBITDA (+$31.6 million).
EGRX’s Equity Investors, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Eagle Pharmaceuticals Peer Group. (Since 2020 Equity Investors, %EBITDA has experienced a very sharp recovery.) In most years, Eagle Pharmaceuticals was in the top quartile and lower quartile. Currently, Eagle Pharmaceuticals is upper quartile at +20% of EBITDA (+$21.5 million).
EGRX’s Change in Cash, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Eagle Pharmaceuticals Peer Group. (Since 2019 Change in Cash, %EBITDA has accelerated very sharply.) In most years, Eagle Pharmaceuticals was in the top quartile and lower quartile. Currently, Eagle Pharmaceuticals is substantially below median at -40% of EBITDA (-$42.3 million).
EGRX’s Cash, %Revenue has suffered a very strong overall downtrend over the period. This downtrend was accompanied by a similar trend for the Eagle Pharmaceuticals Peer Group. In most years, Eagle Pharmaceuticals was in the third quartile and top quartile. Currently, Eagle Pharmaceuticals is below median at +17%.
PROFITABILITY
EGRX’s return on equity has improved very significantly since 2013. The current level is 4.7% versus the high of 6.8% and the low of -54.3%.
EGRX’s very strong negative trend in pretax operating return significantly offset by a very strong positive trend in non-operating factors is a major performance consideration.
The productivity of EGRX’s assets rose over the full period 2013-2023: asset turnover has exhibited a volatile overall uptrend although it experienced a very sharp decline after the 2018 high.
More than offsetting this trend, however, pretax margin experienced a strong overall downtrend even as it experienced a very sharp recovery after the 2022 low.
Non-operating factors (income taxes and financial leverage) had a very significant positive influence on return on equity.
EGRX’s return on equity is lower quartile (4.7%) for the four quarters ended June, 2023.
Operating performance (pretax return on assets) is below median (7.2%) reflecting asset turnover that is slightly below median (0.64X) and below median pretax margin (11.3%).
Tax “keep” rate (income tax management) is lower quartile (41.0%) resulting in after tax return on assets that is at the lower quartile.
Financial leverage (leverage) is above median (1.61X).
GROWTH RATES
There are no significant differences between Eagle Pharmaceuticals’ longer term growth and growth in recent years.
Eagle Pharmaceuticals’ historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has fallen short of equity growth.
Annual revenue growth has been 22.8% per year.
Total asset growth has been 20.1% per year.
Annual E.P.S. growth has been 13.2% per year.
Equity growth has been 19.4% per year.
No consensus growth rate forecast is available for Eagle Pharmaceuticals.
Relative to the Eagle Pharmaceuticals Peer Group, Eagle Pharmaceuticals’ historical growth measures are generally top quartile. Revenue growth (22.8%) has been upper quartile. Total asset growth (20.1%) has been upper quartile. Equity growth (19.4%) has been upper quartile. E.P.S. growth (13.2%) has been at the lower quartile.
Consensus growth forecast is unavailable.
PRICE HISTORY
Over the full time period, Eagle Pharmaceuticals’ stock price performance has been volatile and significantly below market. Between February, 2014 and March, 2024, Eagle Pharmaceuticals’ stock price fell -58%; relative to the market, this was a -85% loss. Significant price moves during the period: 1) November, 2022 – December, 2023: -86%; 2) September, 2021 – September, 2022: -53%; 3) November, 2015 – April, 2016: -59%; and 4) July, 2014 – July, 2015: +750%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of -79.1% is lower quartile relative to the S&P 500 Composite.
In addition to being lower quartile relative to S&P 500 Composite, current annual total return performance through February, 2024 of -79.1% is lower quartile relative to Eagle Pharmaceuticals Inc Peer Group.
Current 5-year total return performance of -34.9% is lower quartile relative to the S&P 500 Composite.
Through February, 2024, with lower quartile current 5-year total return of -34.9% relative to S&P 500 Composite, Eagle Pharmaceuticals’ total return performance is lower quartile relative to Eagle Pharmaceuticals Inc Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, EGRX’s overall valuation is exceptionally low. All five factors are lower quartile. The highest factor is the price/earnings ratio, followed by the ratio of enterprise value/assets, then by the ratio of enterprise value/earnings before interest and taxes, then by the ratio of enterprise value/revenue. The lowest factor is the price/equity ratio.
Relative to Eagle Pharmaceuticals Peer Group, EGRX’s overall valuation is exceptionally low. All five factors are lower quartile. The highest factor is the price/earnings ratio, followed by the ratio of enterprise value/earnings before interest and taxes, then by the ratio of enterprise value/assets, then by the ratio of enterprise value/revenue. The lowest factor is the price/equity ratio.
Eagle Pharmaceuticals has a major value gap compared to the median. For EGRX to hit median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 0.57X to 3.84X. If EGRX’s ratio of enterprise value/revenue were to rise to 3.84X, its stock price would be higher by $65 to $71.
For EGRX to achieve upper quartile valuation relative to the Eagle Pharmaceuticals Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 0.57X to 6.22X. If EGRX’s ratio of enterprise value/revenue were to rise to 6.22X, its stock price would increase by $112 from the current level of $5.73.
VALUE TARGETS
Reflecting future returns on capital that are forecasted to be above the cost of capital, EGRX is expected to continue to be a modest Value Builder.
Eagle Pharmaceuticals’ current Price Target of $46 represents a +702% change from the current price of $5.73.
This very high appreciation potential results in an appreciation score of 97 (only 3% of the universe has greater appreciation potential.)
Notwithstanding this high Appreciation Score of 97, the low Power Rating of 7 results in an Value Trend Rating of C.
Eagle Pharmaceuticals’ current Price Target is $46 (-51% from the 2022 Target of $93 but +702% from the 03/12/24 price of $5.73). This dramatic fall in the Target is the result of a +27% increase in the equity base and a -61% decrease in the price/equity multiple. The forecasted decline in cost of equity has a very large positive impact on the price/equity multiple and the forecasted increase in growth has a large positive impact as well. More than offsetting these Drivers, the forecasted decline in return on equity has a very large negative impact.
PTR’s return on equity forecast is 12.1% — significantly below our recent forecasts. Forecasted return on equity enjoyed a dramatic, erratic increase between 2014 and 2022. The current forecast is significantly below the 2017 peak of 39%.
PTR’s growth forecast is 17.0% — slightly above our recent forecasts. Forecasted growth suffered a dramatic, variable decline between 2014 and 2022. The current forecast is significantly below the 2016 peak of 79%.
PTR’s cost of equity forecast is 10.1% — below recent levels. Forecasted cost of equity suffered a dramatic, erratic increase between 2014 and 2022. The current forecast is well below the 2018 peak of 16.0%.
At Eagle Pharmaceuticals’ current price of $5.73, investors are placing a negative value of $-22 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 13.0% per year, and a return on equity of 34.0% versus a cost of equity of 16.0%.
PTR’s 2024 Price Target of $46 is based on these forecasts and reflects an estimated value of existing assets of $11 and a value of future investments of $35.
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