AMPH Stock Study (6-25-24)

Posted by Mark on August 7, 2024 at 07:23 | Last modified: June 25, 2024 11:00

I recently studied Amphastar Pharmaceuticals Inc. (AMPH) with a closing price of $40.84.

M* writes:

     > Amphastar Pharmaceuticals Inc is a biopharmaceutical company
     > that focuses on developing, manufacturing, marketing, and selling
     > technically challenging generic and proprietary injectable,
     > inhalation, and intranasal products. Additionally, the company
     > sells insulin API products. The company’s finished products are
     > used in hospital or urgent care clinical settings and are
     > contracted and distributed through group purchasing organizations
     > and drug wholesalers. The company has two reportable segments
     > finished pharmaceutical products and API products. Geographically
     > the business presence of the firm is seen in the United States,
     > China and France of which the U.S. accounts for the majority of
     > the revenue from Canada, Mexico, Chile, and the United States.

Over the past decade, this small-size company has grown sales and EPS at annualized rates of 12.1% and 127%, respectively. The latter is misleading. GAAP losses are posted in ’14, ’15, and ’18 while big YOY EPS declines are seen in ’17 and ’20.

I am on the fence whether the company passes visual inspection. As a small company, perhaps it deserves some leeway for “growing pains.” Value Line, which excludes nonrecurrent gains/losses, is more encouraging in reporting positive EPS since ’16 and growing EPS since ’17. Lines are generally improving since ’14 albeit somewhat cyclical and sometimes negative. Only since ’21 are lines strictly up, straight, and parallel.

Over the past 10 years, PTPM leads peer averages but trails the industry while increasing from -8.6% (’14) to 26.6% (’23) with a last-5-year mean of 17.8%. ROE trails peer and industry averages despite climbing from -3.9% (’14) to 21.0% (’23) with a last-5-year mean of 12.7%. Debt-to-Capital is lower than peer and industry averages despite increasing from 13.4% (’14) to 19.0% (’21) and then to 49.4% (’23 after acquiring BAQSIMI from Eli Lilly) for a last-5-year mean of 22.8%.

Quick Ratio is 1.7 and Interest Coverage is 6.3. Value Line gives a B+ grade for Financial Strength.

With regard to sales growth:

• YF projects YOY 16.7% and 6.1% for ’24 and ’25, respectively (based on 6 analysts).
• Zacks projects YOY 16.1% and 14.0% for ’24 and ’25, respectively (3 analysts).
• Value Line projects 10.6% annualized growth from ’23-’28.
• CFRA gives ACE of 16.7% YOY and 14.3% per year for ’24 and ’23-’25, respectively (5).

I am forecasting below the range at 6.0% per year.

With regard to EPS growth:

• MarketWatch projects 11.4% and 12.9% per year for ’23-’25 and ’23-’26, respectively (based on 6 analysts).
• Nasdaq.com projects 25.9% YOY and 20.0% per year for ’24-’26 and ’24-’27 [4/1/1 analyst(s) for ’24/’26/’27].
• Seeking Alpha projects 4-year annualized growth of 13.5%.
• YF projects YOY 14.2% and 15.6% for ’24 and ’25, respectively (6), along with 5-year annualized growth of 22.6%.
• Zacks projects YOY 16.2% and 13.5% for ’24 and ’25, respectively (4), along with 5-year annualized growth of 13.5%.
• Value Line projects 12.6% annualized growth from ’23-’28.
• CFRA gives ACE of 42.3% YOY and 25.4% per year for ’24 and ’23-’25, respectively (5).

My 10.0% per year forecast is below the long-term-estimate range (mean of four: 15.6%). Initial value is ’23 EPS of $2.60/share rather than 2024 Q1 EPS of $2.89 (annualized).

My Forecast High P/E is 18.0. Since 2016, high P/E falls from 98.9 (’16) to 26.0 (’23) (excluding NMF in ’18 and triple-digit values in ’17 and ’20) with a last-5-year mean of 24.2 and a last-5-year-mean average P/E of 18.8. I am below the range.

My Forecast Low P/E is 11.0. Since 2016, low P/E falls from 47.8 (’16) to 10.6 (’23) (excluding NMF in ’18 and triple-digit values in ’17 and ’20) with a last-5-year mean of 13.5. I am forecasting near bottom of the range (only ’23 is lower).

My Low Stock Price Forecast (LSPF) of $28.60 is default based on initial value given above. This is 30.0% less than the previous closing price and 25.5% less than the 52-week low.

These inputs land AMPH in the HOLD zone with a U/D ratio of 2.8. Total Annualized Return (TAR) is 13.1%.

PAR (using Forecast Average—not High—P/E) is less than I seek for a small-size company at 8.3%. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 62 studies (my study and nine outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 12.0%, 13.3%, 20.0, and 12.4, respectively. I am lower across the board. Value Line’s projected average annual P/E of 13.5 is less than MS (16.2) and less than mine (14.5).

MS high / low EPS are $5.29 / $2.77 versus my $4.19 / $2.60 (per share). My high EPS is less due to a lower growth rate. Value Line tops both at $6.00/share.

MS LSPF of $31.00 implies a Forecast Low P/E of 11.2: less than the above-stated 12.4. MS LSPF is 9.8% less than the default $2.77/share * 12.4 = $34.35 thereby resulting in more conservative zoning. MS LSPF is still 8.4% higher than mine.

With regard to valuation, PEG is 0.8 and 1.3 per Zacks and my projected P/E: fair and lower than I usually see. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is low at 0.75 (triple-digit values excluded as discussed above).

MOS in this study is robust. TAR (over 15.0% preferred) is much less than the MS 20.6%. My forecast growth rates and P/E range are at or below analyst estimates.

In case visual inspection is deemed to fail, a smaller-than-core position size can allow for participation with decreased risk.

U/D has AMPH a BUY under $40/share. The stock needs to approach $37 in order to meet the BI TAR criterion given a forecast high price ~$75.