Biopharmaceutical company Jazz Pharmaceuticals plc (JAZZ - Get Rating) is known for its diverse product pipeline that ranges from sleep medicine to cancer drugs. It has lost 8.4% over the past month. However, the stock has gained 38% over the past nine months.

While most biopharma companies not directly involved in COVID-19 vaccine development have failed to attract significant investor attention, JAZZ has managed to maintain its growth pace through strategic expansions and efficient operations.

So, analysts expect the earnings and revenues of this relatively undervalued stock to grow significantly in the near term.

Here is what I think should drive JAZZ’s performance in the upcoming months:

Strategic Entry to Cannabinoid Industry

JAZZ announced yesterday that it is currently acquiring U.K.-based GW Pharmaceuticals Plc (GWPH) for $7.20 billion. GW Pharmaceuticals is known for marketing  the first cannabis infused drug designed to treat children with severe epilepsy disorders. The medication, called  Epidiolex, was approved by the U.S. FDA in 2018, and has attracted immense interest  since then. The company also has a pipeline of cannabis drugs to treat autism, schizophrenia, and multiple sclerosis in the late clinical trial stages.

With the U.S. government currently eyeing nationwide legalization of marijuana for medical and recreational purposes, JAZZ’ acquisition should allow it to leverage GW Pharmaceuticals’ industry knowledge and product pipeline in the booming cannabinoid market.

We believe that JAZZ, which focuses primarily on cancer drugs and sleep deprivation medication, is well-positioned to explore new therapeutic avenues .

Impressive Growth Story

JAZZ’s revenues have increased 11.8% year-over-year to $600.89 million in the third quarter ended September 30, 2020. Its net income has risen 44.9% from the year-ago value to $148.23 million, while its EPS grew 48.3% from the same period last year to $2.64. Moreover, JAZZ surpassed the Street’s EPS estimates in three  of the trailing four quarters, which is impressive.

The company has maintained its momentum over the past three years. JAZZ’s revenues have increased at a CAGR of 13% over this period, while EBITA rose at a CAGR of 8.7%. The company’s total assets increased at a CAGR of 8% over the past three years.

Analysts  Optimistic About Its Future Growth

Given the company’s market reach and recent acquisitions, JAZZ will likely maintain its growth streak in the near future. A consensus EPS estimate of $3.56 for the fiscal first quarter ending March 31, 2021 represents  a 691.1% rise year-over-year, while the consensus revenue estimate of $587 million for the ongoing quarter represents  a 9.8% improvement from the prior-year quarter.

Upside  in the Stock

Analysts expect JAZZ to hit $181.37 in the near term, indicating a potential upside of 15.3%. Moreover, of 19 Wall Street analysts that rated the stock, six rated it “Strong Buy.” The stock has an average broker rating of 1.45, which indicates above-average returns in the coming months.

POWR Ratings Indicate Impressive Prospects

JAZZ has an overall rating of B, which equates to Buy in our proprietary 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 evaluates each stock on a total eight different categories. JAZZ has a grade of A for Value. This is justified because  the stock’s non-GAAP trailing 12-month P/E of 11.73x is 54.4% lower than the industry average of 25.71x.

The company has a grade of B for both Quality and Growth, reflecting its surging revenues and earnings, as well as profitability. In the 478-stock Biotech industry, JAZZ is currently ranked #8.

Click here to check out additional JAZZ POWR Ratings (Momentum, Stability and Sentiment).

There are several other stocks in the Biotech industry with an overall grade of A or B. Click here to see them.

Bottom Line

JAZZ’s diversified product pipeline and entry into the burgeoning  cannabinoid industry should allow the company to generate  handsome  growth rates soon. As such, it should be a top pick for your investment portfolio.

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JAZZ shares were unchanged in after-hours trading Thursday. Year-to-date, JAZZ has declined -9.00%, versus a 3.29% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

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