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Phirbo's Product Mix Aids, Global Animal Health Business Ails

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On Aug 31, we issued an updated research report on Phibro Animal Health Corporation (PAHC - Free Report) . Phibro Animal’s existing operations and established sales, marketing and distribution network in more than 65 countries provide it ample scope to take advantage of global growth opportunities. However, adverse currency movements remain a major concern for this Zacks Rank #3 (Hold) company.

This leading global diversified animal health and mineral nutrition company has been underperforming its industry for the past six months. The stock has lost 14.7% against the industry’s 7.2% rise.

Phibro exited fourth-quarter fiscal 2020 with lower-than-expected earnings. Phibro’s top line declined 8.8% year over year primarily due to pandemic-led challenges. Dismal quarterly revenues primarily resulted from poor international performance of the Animal Health arm. The other two reporting segments also put up a disappointing show.

The industries that the company caters to (especially swine and cattle customers) also faced issues like lack of processing availability and sudden drop in demand. The company had to close down many of its production facilities or operate at different rates due to the pandemic.

On a positive note, during the fourth quarter of fiscal 2020, Animal Health segment’s nutritional specialty product sales rose 8.7%, primarily due to the acquisition of Osprey Biotechnics. Apart from this, net vaccine sales reflected an increase of 8.1% year over year on higher international volumes. Despite the overall decline in Animal Health, these two sub segments registered robust growth.

Further, the company recorded a favorable product mix in the Animal Health segment during the quarter, which partly contributed to an improvement in the overall gross profit margin.

Outside the United States, Phibro Animal’s global footprint extends to key high-growth regions (countries where the livestock production growth rate is expected to be higher than the average growth rate), including Brazil and other countries in South America, China, India and Asia Pacific, Russia and former CIS countries, Mexico, Turkey, Australia, Canada and South Africa

Since Phibro Animal conducts operations globally, it transacts in a variety of currencies. Although a portion of the company’s revenues are denominated in various currencies, the selling prices of majority of its products outside the United States are referenced in U.S. dollars.

As a result, Phibro Animal’s revenues are not significantly affected by currency movements. However, the company is subject to currency risk to the extent that its costs are denominated in currencies other than those in which it earns revenues. Also, a persistently weak dairy industry within the Animal Heath arm is disappointing.

Key Picks

Some better-ranked stocks from the broader medical space are QIAGEN N.V. (QGEN - Free Report) , Thermo Fisher Scientific Inc. (TMO - Free Report) and Hologic, Inc. (HOLX - Free Report) .

QIAGEN’s long-term earnings growth rate is estimated at 22.3%. It currently sports a Zacks Rank #1. (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Thermo Fisher’s long-term earnings growth rate is estimated at 15%. It currently carries a Zacks Rank #2 (Buy).

Hologic’s long-term earnings growth rate is estimated at 15.5%. The company presently sports a Zacks Rank #1.

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