Phibro Animal Health: Currency & Competition Woes Persist

On Aug 23, 2016, we issued an updated research report on NJ-based Phibro Animal Health Corporation (NASDAQ:PAHC) – a leading global diversified animal health and mineral nutrition company. The company provides a broad range of products for animals consumed as food, such as poultry, swine, beef and dairy cattle, as well as aquaculture.

Phibro sells the bulk of its products to a number of regional and national feed companies, distributors, co-ops, blenders, integrated poultry, as well as swine and cattle operations. Significant consolidation of the company’s customers may result in these groups gaining additional purchasing leverage. This in turn might increase the product pricing pressures challenging Phibro’s business.

The company is subject to currency risk to the extent that its costs are denominated in currencies other than those in which the company earns revenues. During the last reported third quarter, Phibro witnessed tough currency challenges in its Animal Health segment primarily owing to the movement of Brazil, Argentina and South African currencies relative to the U.S. dollar.

Notably, Phibro manufactures some of its major products in Brazil and Israel, where production costs are largely denominated in local currencies, while selling prices are largely set in U.S. dollars.

Phibro also faces competition from generic alternatives of some of its products that may weigh on its future financial health and operational performance.

However, Phibro is currently well poised in the fast growing food animal species segment of the animal health market with significant presence in poultry and swine, which are projected by Vetnosis to grow globally at compound annual rates of 5.9% and 5%, respectively, between 2014 and 2019.

Further, Phibro has established direct presence in many important emerging markets. Outside the U.S., Phibro’s global footprint extends to key high-growth regions including Brazil and other countries in South America, China, India and Asia Pacific, Mexico, Turkey, Australia, Canada and South Africa and other countries in Africa.

Currently, Phibro has a Zacks Rank #4 (Sell).

Key Picks in the Sector

Some better-ranked medical products stocks worth mentioning are GW Pharmaceuticals plc (NASDAQ:GWPH) , Quidel Corp. (NASDAQ:QDEL) and Baxter International Inc. (NYSE:BAX) . While GW Pharmaceuticals and Quidel sport a Zacks Rank #1 (Strong Buy), Baxter carries a Zacks Rank #2 (Strong Buy).