Emergent BioSolutions (EBS -4.35%) ended the week on a down note. Shares of the company closed 6.2% lower on Friday after it provided its fourth-quarter update following the market close on Thursday. Is the stock a buy on the dip?
There certainly were some positive takeaways for investors in Emergent's Q4 results. The company topped Wall Street expectations with adjusted earnings per share of $4.50. Sales of its anthrax vaccines and nasal naloxone products continue to grow briskly.
Emergent is also making progress on a couple of fronts that could pay off in the future. The company has kicked off its rolling submission to the U.S. Food and Drug Administration (FDA) of the Biologics License Application (BLA) for anthrax vaccine AV709. It also recently began a pivotal late-stage clinical study evaluating its single-dose chikungunya virus vaccine candidate.
However, there was also plenty of bad news behind the healthcare stock sinking today. Emergent cut its 2022 revenue guidance by $100 million. It revised 2022 earnings downward by $40 million.
CFO Rich Lindahl said in the company's fourth-quarter conference call that the lower outlook stemmed from Johnson & Johnson "evaluating their global supply chain as they assess the demand for their COVID-19 vaccine." Although Emergent's contract with J&J remains unchanged, this isn't encouraging.
The company's contract development and manufacturing (CDMO) backlog is already headed in the wrong direction, sliding 16% year over year in the fourth quarter. New CDMO business secured plunged 55% in Q4.
Shares of Emergent BioSolutions are trading at only 10.1 times expected earnings. However, with a significant level of uncertainty about future growth, that cheap valuation isn't nearly as attractive as it might otherwise be. My view is that the stock isn't a buy on the dip at this point.