What Do Elanco’s Earnings and Risk Factors Tell Investors?

Indiana-headquartered Elanco Animal Health (ELAN) develops medicines for pets and livestock. It previously operated as a subsidiary of pharmaceutical giant Eli Lilly (LLY). Elanco is in the process of acquiring KindredBio following the acquisition of Bayer Animal Health. Notably, the company now plans to sell some of its manufacturing sites.

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Let’s take a look at Elanco’s latest financial performance and risk factors.

Elanco’s Q2 Results and 2021 Guidance

The company reported second-quarter revenue of $1.28 billion, up 118% year-over-year to $1.28 billion, and exceeded its guidance range of $1.23 billion to $1.26 billion. It also topped the consensus estimate of $1.23 billion.

Additionally, adjusted EPS of $0.28 surpassed internal expectations of $0.22 – $0.27 and beat the consensus estimate of $0.26. The company attributed the strong results to contributions from the Bayer Animal Health business.

Elanco CEO Jeff Simmons commented, “We head into the back half of the year with confidence in our ability to drive sustainable double-digit adjusted EBITDA and adjusted EPS growth. We see evidence that our transformation is creating durable, long-term value for our customers, our shareholders, and our global team.” (See Elanco stock charts on TipRanks).

Looking forward, Elanco issued Q3 guidance calling for revenue to come in the range of $1.075 billion – $1.1 billion. It anticipates adjusted EPS in the band of $0.15 – $0.19.

For full-year 2021, Elanco raised its guidance and now anticipates revenue in the range of $4.68 billion – $4.73 billion. The previous estimate called for revenue to come in the range of $4.67 billion – $4.71 billion.

Elanco’s Risk Factors

The new TipRanks Risk Factors tool shows 48 risk factors for Elanco. Since June 2021, the company has revised its risk profile to add two new risk factors.

A newly added risk factor under the Finance and Corporate category cautions about potential challenges from acquisitions that Elanco may pursue. For example, it tells investors that the integration of KindredBio may face difficulties and that it may not achieve the benefits it anticipates in a timely manner.

Furthermore, Elanco says that future acquisitions may require it to raise additional cash through equity or debt offerings. It warns investors that such fundraising efforts could adversely affect its stock price.

Under the Ability to Sell category, a newly added risk factor warns investors about the fluctuation in Elanco’s business results due to seasonality. For example, the company states that weather conditions and the availability of veterinarians affect its sales. It says that some of its higher-margin products perform best in the first half of the year. Therefore, Elanco wants investors to realize that there are times when its results may not meet the expectations of Wall Street, which may cause its stock price to decline.

Finance and Corporate is Elanco’s top risk category, accounting for 27% of the total risks. That’s below the sector average of 37%. Elanco’s shares have declined about 1.7% since the beginning of 2021.

Analysts’ Take

Following Elanco’s Q2 report, Citigroup analyst Liav Abraham reiterated a Buy rating on Elanco stock but lowered the price target to $40 from $42. Abraham’s new price target suggests 32.63% upside potential.

Consensus among analysts is a Moderate Buy based on 5 Buys and 2 Holds. The average Elanco price target of $40 implies 32.63% upside potential to current levels.