If you had invested $10,000 in shares of Emergent BioSolutions (EBS 0.61%) at the beginning of last year, that investment would be worth $16,608 as of Dec. 31. That's an impressive outperformance compared to the S&P 500's 18.4% return last year. And the stock is likely to surge to a new all-time high in 2021 for one key reason.
Emergent BioSolutions has managed to secure manufacturing deals with several prominent coronavirus vaccine drugmakers on top of marketing several critical public health products. These agreements could potentially add over $1 billion in future revenue for a company that has a market cap of only $4.75 billion. Let's look at why the company is a top coronavirus stock to buy right now.
A solid pipeline
Emergent BioSolutions is a diversified biotech company that develops vaccines, therapeutics, antibodies, and medical devices, as well as offering contract manufacturing services. Its products treat a variety of conditions, ranging from anthrax to smallpox to botulism to pain management. During the third quarter of 2020, its revenue increased to $385 million from $312 million a year ago. At the same time, the company's net income doubled to $119 million.
Perhaps the most significant boost to Emergent BioSolutions' bottom line this year has been the COVID-19 pandemic. The company is currently responsible for manufacturing experimental coronavirus vaccines developed by AstraZeneca, Johnson & Johnson, Vaxart, Novavax, and others. In addition, Emergent BioSolutions is also testing the effects of two experimental COVID-19 therapies for patients who develop severe disease symptoms. These candidates are in phase 2/3 clinical testing, with clinical data anticipated this year.
Last year, the company secured over $1.5 billion in coronavirus vaccine manufacturing deals. Consequently, its free cash flow for the first nine months of 2020 increased to $186 million from $15 million during the same period last year.
Looking forward, coronavirus vaccines will become a huge pillar of growth for Emergent BioSolutions as developers ramp up production capacity. Contingent on regulatory clearance, AstraZeneca, Johnson & Johnson, and Novavax plan to produce a combined total of 5.3 billion doses of their vaccine candidates in 2021.
What's more, Emergent BioSolutions' non-COVID-19 related products generate safe and consistent revenue. This is because they are of public health or military significance, and have received the backing of the U.S. government. Government contracts account for 61% of the company's sales for much of 2020.
Since 2016, government agencies have stockpiled up to $6.4 billion worth of Emergent BioSolutions' products, including $721 million in 2020. Each contract lasts between five to 10 years, with the option to purchase additional supply.
Takeaways for investors
Emergent BioSolutions is definitely a biotech with a lot of potential. However, the best part is yet to come.
The company expects to bring in nearly $1.58 billion in revenue and $405 million in earnings in 2020, which are significant increases from the $1.1 billion in sales and $152.3 million in net income it generated in 2019. By 2024, the company expects to generate at least $2 billion in revenue.
That kind of growth is even better in the context of its valuation. Right now, the company is trading for 3.7 times sales and 30 times earnings. These metrics are a lot cheaper compared to most of the coronavirus vaccine developers out there. If you're looking to buy high-flying coronavirus stocks at reasonable prices, Emergent BioSolutions is a fantastic choice.