Based in Ireland, global biopharmaceutical company Jazz Pharmaceuticals Plc (JAZZ) is engaged in developing and distributing medicines for various unmet medical needs in the United States and internationally. In addition, the company has licensing and collaboration agreements with ImmunoGen, Inc.; Codiak BioSciences, Inc.; Pfenex, Inc.; XL-protein GmbH; and Redx Pharma plc.

The company’s revenue and EBITDA have grown at a CAGR of 13.6% and 7.1%, respectively, over the past three years. Moreover, its total assets have increased at an annualized rate of 35.2% over the same period. However, JAZZ’s net income and EPS have declined at CAGRs of 54.8% and 54.1%, respectively, over the past three years.

JAZZ’s shares have retreated 8.7% over the past year and 21.1% year-to-date to close yesterday’s trading session at $130.21. Though the company could benefit from its recent drug approvals and expanding R&D capabilities, its significant cash burn and mixed financials could cause its shares to decline further.

Here’s what could shape JAZZ’s performance in the near term:

Positive Developments

Last month, the U.S. Food and Drug Administration (FDA) approved JAZZ’s Xywav oral solution to treat idiopathic hypersomnia in adults. This milestone demonstrates the company’s patient-focused R&D strategy and internal development capabilities.

In July, The National Comprehensive Cancer Network (NCCN) included RylazeTM in the Clinical Practice Guidelines in Oncology (NCCN Guidelines) for both pediatric and adult patients with Acute Lymphoblastic Leukemia (ALL).

Acquisition Can Increase Expenses

In May, JAZZ completed the acquisition of GW Pharmaceuticals plc, a leading cannabinoid-based prescription medicines company, for approximately $7.2 billion. Although the combined business should enable JAZZ to expand its commercial and operational footprint and diversify its portfolio, the acquisition could increase costs and drain its cash reserves in the near term.

Mixed Financials and Profitability

JAZZ’s revenue increased 33.7% year-over-year to $751.81 billion in its fiscal second quarter ended June 30. However, its operating loss came in at $69.59 million, compared to an operating profit of $198.13 million. The company reported a net loss of $363.32 million, compared to a net income of $363.32 million. Its loss per share amounted to $6.11 over this period. In addition, its cash and cash equivalents declined 15.7% from the year-ago value to $891.40 million.

Its trailing-12-month gross profit margin of 92.9% is 68.9% higher than the industry average of 55%. In addition, JAZZ’s EBITDA margin of 415% is 614.2% higher than the industry average of 5.7%. However, its trailing-12-months asset turnover ratio of 0.3% is 24.6% lower than the industry average of 0.4%.

Mixed Growth Prospects

Analysts expect JAZZ’s EPS to rise 16.4% from the same period last year to $14.5 in the current year. Also, Street expects JAZZ’s revenues to grow 30.7% year-over-year to $3.09 billion in the fiscal year 2021. Moreover, the company’s revenue is expected to rise 21.6% year-over-year to $3.76 billion in fiscal 2022, while its EPS is expected to increase 21.8% from the same period last year to $17.66 next year.

However, the consensus EPS estimate of $3.26 for the current quarter represents a 24.4% year-over-year decline. Furthermore, its EPS is expected to decline 14.2% from the year-ago value to $3.43 in the next quarter ending December 2021.

Discounted Valuation

In terms of non-GAAP forward P/E, the stock is currently trading at 9.09x, which is 462.4% lower than the industry average of 34.03x. Also, its forward EV/Sales multiple of 4.59x is 32.1% lower than the industry average of 6.76x. Moreover, JAZZ’s forward Price/Book of 1.88x is 58.4% lower than the industry average of 4.52x.

POWR Ratings Reflect Uncertainty

JAZZ has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. JAZZ has a B grade for Value. The stock’s lower-than-industry valuation multiples are consistent with this grade.

The stock also has a C grade for Quality and Growth. The company’s mixed growth potential and profitability are in sync with these grades.

Of the 503 stocks in the F-rated Biotech industry, JAZZ is ranked #52.

Beyond what I’ve stated above, you can view JAZZ ratings for Stability, Sentiment, and Momentum here.

Bottom Line

Despite witnessing significant revenue growth driven by innovative product launches and acquisitions, JAZZ’s operational inefficiencies and uncertain growth prospects could be a cause for concern. Thus, we think investors should wait for the company’s financials to stabilize before investing in the stock.

How Does Jazz Pharmaceuticals Plc (JAZZ) Stack Up Against its Peers?

While JAZZ has an overall C rating, one might want to consider looking at its industry peers, Sino Biopharmaceutical Ltd. (SBHMY) and Corcept Therapeutics Incorporated (CORT), having an overall A (Strong Buy) rating.

JAZZ shares were trading at $130.05 per share on Friday afternoon, down $0.16 (-0.12%). Year-to-date, JAZZ has declined -21.21%, versus a 16.61% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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