Emergent: Infectious Diseases to Biological Threats

09/18/2019 5:00 am EST

Focus: HEALTHCARE

Tom Bishop

Founder, BI Research

Emergent Biosolutions (EBS) is a global life sciences company focused on providing to civilian and military populations specialty products and services that address accidental, intentional and naturally emerging public health threats, explains small cap expert Tom Bishop, editor of BI Research.

The company manufactures and commercializes medical counter measures that address two categories of threats: infectious diseases and CBRN threats — chemical, biological (anthrax), radiological and nuclear. It’s good to know there are companies like this around.

Emergent inched temporarily higher on Q2 results in a down market. Basically the company beat the consensus and held steady on full year guidance.

In particular, it beat expectations for Q2 EPS by $.03, reporting a loss of $.12 which was better than the loss of $0.15 expected. More impressively analysts were looking for revenues of $218 million for the quarter and the company tabled $243 million.

Emergent is working on a serious hockey stick finish to the year with almost all its earnings (and 60% of its revenue) coming in H2 with an emphasis on Q4.

Negotiations for the renewal of the ACAM2000 smallpox vaccine contract have accelerated now that the Vaccinia Immune Globulin intravenous 10-year $535 million supply contract has been signed and based on the advanced state of these negotiations the company is quite confident that this will be signed shortly and shipments will begin in Q3. It has already been making the product to ship.

In addition, Emergent has a $1.5 billion contract for AVT7909 in place against which the U.S. government has just ordered its first $261 million to procure 10 million doses of AVT7909 and this also will begin shipping in Q3. Recall that this is the next generation anthrax vaccine.

Accordingly management continues to project around $1.1 billion for revenues and $150 to $180 million in adjusted net income which on 52 million shares and at the midpoint would equate to EPS of $3.17.

The consensus has inched up a nickel to $2.98. Analysts are probably giving some slack due to the extreme hockey stick nature of this year and how little of that is in the bag after two quarters.

Nonetheless, you can see how things are set to pick up and investors seemed satisfied with the report. Analysts are looking for $0.78 vs. $0.55 in Q3 and $2.21 in Q4. At the end of the day the consensus implies 28% growth.

So I think you need to keep your eye on full year results and not the lumpiness that makes up a typical year.

Emergen Biosolutions remains an intriguing "Buy" for the more adventurous;  if you are already onboard, then hold, as we think better days are coming.

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