Phibro (PAHC) Suffers Dismal Segmental Sales, Margin Woes

On Oct 10, we issued an updated research report on Phibro Animal Health Corporation (NASDAQ:PAHC) . Phibro Animal’s existing operations, established sales plus marketing and distribution network in more than 65 countries provide it with ample scope to capitalize on global growth opportunities. However, adverse currency movements remain a major concern for this Zacks Rank #5 (Strong Sell) company.

Shares of this leading global diversified animal health and mineral nutrition company have underperformed its industry in a year's time. The stock has lost 48.5% against the industry’s 0.4% rise.

Phibro Animal performed disappointingly in fiscal 2019. Revenues declined year over year due to significantly lower sales in two core segments, namely Animal Health and Mineral Nutrition. Contraction in the operating margin is also concerning.

According to Phibro Animal, soft demand in Animal Health business due to the African swine fever outbreak in China along with unfavorable product mix in Mineral Nutrition resulted in subdued gross profit.

Also, 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 worrisome.

On a positive note, the company witnessed double-digit revenue growth in its Performance Products business. Moreover, strong international volume growth in dairy products contributed to the rise in Nutritional specialty product sales. The company is also upbeat about its long-term prospects within the Animal Health segment and has invested in strategic acquisitions like Osprey Biotechnics. Further, the launch of Rejensa, a supplemental chew for canine joint health, instills optimism on the stock.

Earlier this year, the company launched Provia Prime, its direct-fed microbial product, aimed at improving poultry health. The very recent buyout of Osprey Biotechnics is expected to add microbial and bio products to Phibro Animal’s animal health portfolio.

Meanwhile, Phibro Animal’s mineral nutrition products strengthen an animal’s diet and helps sustain its optimal health. Management believes, the diversity of species and product categories enhances the company’s sales mix and mitigates sales concentration risk.

Key Picks

Some better-ranked stocks from the broader medical space are Conatus Pharmaceuticals Inc (NASDAQ:CNAT) , GW Pharmaceuticals PLC (NASDAQ:GWPH) and Stryker Corporation (NYSE:SYK) .

Conatus has a Zacks Rank #1 (Strong Buy) and a projected third-quarter 2019 earnings growth rate of 30.8%. You can see the complete list of today’s Zacks #1 Rank stocks here.

GW Pharmaceuticals estimates third-quarter earnings growth rate to be 70.2%. It currently carries a Zacks Rank #2 (Buy).

Stryker Corporation has a Zacks Rank of 2 and an expected third-quarter earnings growth rate of 12.4%.

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