One of Wall Street's biggest winners of the day is Elanco Animal Health, a pharmaceutical company whose shares have climbed 3.7% to a price of $19.62 -- near its average analyst target price of $19.0.
The average analyst rating for the stock is buy. ELAN outperformed the S&P 500 index by 3.0% during today's afternoon session, and by 17.0% over the last year with a return of 32.1%.
Elanco Animal Health Incorporated, an animal health company, innovates, develops, manufactures, and markets products for pets and farm animals worldwide. The company is categorized within the healthcare sector. The catalysts that drive valuations in this sector are complex. From demographics, regulations, scientific breakthroughs, to the emergence of new diseases, healthcare companies see their prices swing on the basis of a variety of factors.
Elanco Animal Health's trailing 12 month P/E ratio is 22.3, based on its trailing EPS of $0.88. The company has a forward P/E ratio of 19.7 according to its forward EPS of $0.94 -- which is an estimate of what its earnings will look like in the next quarter.
The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the third quarter of 2024, the health care sector has an average P/E ratio of 22.94, and the average for the S&P 500 is 29.3.
Another key to assessing a company's health is to look at its free cash flow, which is calculated on the basis of its total cash flow from operating activities minus its capital expenditures. Capital expenditures are the costs of maintaining fixed assets such as land, buildings, and equipment. From Elanco Animal Health's last four annual reports, we are able to obtain the following rundown of its free cash flow:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cash Flow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2024 | 541,000 | 147,000 | 394,000 | 200.76 |
| 2023 | 271,000 | 140,000 | 131,000 | -53.38 |
| 2022 | 452,000 | 171,000 | 281,000 | -13.27 |
| 2021 | 483,000 | 159,000 | 324,000 | 302.5 |
| 2020 | -41,000 | 119,000 | -160,000 | -290.48 |
| 2019 | 224,000 | 140,000 | 84,000 |
- Average free cash flow: $175.67 Million
- Average free cash flown growth rate: 36.2 %
- Coefficient of variability (the lower the better): 0.0 %
Free cash flow represents the amount of money that is available for reinvesting in the business, or for paying out to investors in the form of a dividend. With a positive cash flow as of the last fiscal year, ELAN is in a position to do either -- which can encourage more investors to place their capital in the company.
Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts.
Elanco Animal Health has a P/B ratio of 1.44. This indicates that the market value of the company exceeds its book value by a factor of more than 1, but is still below the average P/B ratio of the Health Care sector, which stood at 3.19 as of the third quarter of 2024.
Elanco Animal Health is by most measures undervalued because it has a Very low P/E ratio, a lower P/B ratio than its sector average, and generally positive cash flows with an upwards trend. The stock has mixed growth prospects because it has a an average PEG ratio and weak operating margins with a positive growth rate. We hope you enjoyed this overview of ELAN's fundamentals.
