Ireland-based specialty pharmaceutical company Endo International plc (ENDP) manufactures and sells generic and branded pharmaceuticals in the United States and worldwide. Shares of ENDP have tumbled 4.8% in price over the past five days and 49.4% over the past month because of its plans to explore a potential financial restructuring.

As reported by The Wall Street Journal, the company is said to have hired a financial restructuring advisor prompted by a flood of opioid-related lawsuits.

The stock is currently trading 80.6% below its 52-week high of $10.89, which it hit on February 18. Although the company’s impressive sequential growth driven by the XIAFLEX pharmaceutical brand in the last reported quarter and advancements in the growth of its product pipeline should bode well for the stock, its operational losses have expanded significantly. In addition, several lawsuits that ENDP is battling could foster bearish investor sentiment.

Here’s what could influence ENDP’s performance in the coming months:

Opioid-related Lawsuits and Non-Infringement Ruling

Last month, ENDP’s wholly owned subsidiaries Endo Health Solutions Inc. and Endo Pharmaceuticals Inc. executed a definitive Settlement Agreement to resolve the opioid-related Tennessee State Court case, which involved claims by nine counties in Eastern Tennessee. The settlement involved a  payment of $35 million by the company to be allocated among the plaintiffs. This could drain the company’s cash reserve and put downward pressure on its stock price.

Also,  ENDP lost the trial of VASOSTRICT patent litigation last month in its bid to stop Eagle Pharmaceuticals Inc. from selling a generic version of the blood pressure drug.  The United States District Court for the District of Delaware’s ruling that Eagle Pharmaceuticals’ version of the drug does not infringe on the two Par Pharmaceutical patents has dealt a big blow on ENDP’s best-selling drug.

Bleak Growth Potential

Analysts expect ENDP’s EPS to decrease 11.5% year-over-year to $0.46 in the current quarter, ending September 2021. Its consensus EPS estimates indicate a 19.5% decline  in the current year and a 3.5% decline in its fiscal year 2022. ENDP surpassed  consensus EPS estimates in each of the trailing four quarters.

The $675.43 million consensus revenue estimate for the next quarter, ending December 31, 2021, indicates an 11.2% decline year-over-year. Also, its revenue is estimated to decrease 4.4% year-over-year to $2.77 billion in 2021.

Mixed Financials and Profitability

ENDP’s total revenue increased 4% year-over-year to $713.83 million in the second quarter, ended June 30, 2021, attributable primarily to an  increase in specialty products revenue. Its XIAFLEX revenues came in at $111 million versus $34 million in the second quarter of 2020. Also, ENDP’s net increase in cash, cash equivalents, and restricted cash stood at $288.73 million for the six months ended June 30, 2021. However, the company’s loss from continuing operations amounted to $10.18 million for the quarter, compared to $17.61 million in income from continuing operations in the prior-year quarter. Its net loss totaled $15.50 million, compared to $10.56 million in net income in the prior-year period. Its non-GAAP EBITDA declined 7.8% from the year-ago value to $247.3 million over this period.

The company’s 25.2% trailing-12-month EBIT margin is 807.5% higher than the industry 2.8% average. Also, ENDP’s 15.1% levered free cash flow margin is significantly higher than the 0.3% industry average. But its 0.3% asset turnover ratio  is 14.8% lower than the 0.4% industry average.

Discounted Valuation

In terms of forward EV/Sales, ENDP is currently trading at 2.63x, which is 62.9% lower than the 7.10x industry average In addition, the stock’s 0.18 forward Price/Sales multiple  is 97.8% lower than the 8.28 industry average. Likewise, ENDP’s 5.75x forward EV/EBITDA is 64.8% lower than the 16.35x industry average.

POWR Ratings Reflect Uncertainty

ENDP has an overall C rating, which translates to Neutral in our POWR Ratings system. The POWR Ratings are calculated by 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. ENDP has an A grade for Value. The stock’s lower-than-industry valuation multiples are in sync with this grade.

However, the company has a Sentiment grade of D. This justifies analysts’ expectation that its earnings and revenue will decline year-over-year in the current year.

In terms of Stability Grade, ENDP has a C, which is  consistent with the stock’s relatively high 1.37 beta value.

In addition to the grades we’ve highlighted, one can check out additional ENDP ratings for Momentum, Growth, and Quality here. ENDP is ranked #54 of 217 stocks in the F-rated Medical – Pharmaceuticals industry.

Click here to checkout our Healthcare Sector Report for 2021

Bottom Line

Robust revenue growth in its branded pharmaceuticals segment driven by XIAFLEX and heavy investments in the progression of the product pipeline have contributed to a significant improvement in ENDP’s core business. However, the drugmaker’s recent loss in a patent trial and news related to its potential financial restructuring over opioid litigation could add uncertainties to the stock’s growth prospects. So, we think investors should wait for ENDP to fare better at navigating the crisis before investing in the stock.

How Does Endo International (ENDP) Stack Up Against its Peers?

ENDP has an overall rating of C in our proprietary rating system. Therefore, one  might want to consider looking at its industry peers, Novartis AG. (NVS) and Ipsen S.A. (IPSEY), which have an A (Strong Buy) rating.

ENDP shares were trading at $2.08 per share on Thursday morning, down $0.03 (-1.42%). Year-to-date, ENDP has declined -71.03%, versus a 21.63% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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