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Elanco Animal Health: An Unnoticed Stock With Potential


  • Elanco Animal Health Inc. is buying Bayer’s animal health unit.
  • Elanco has underperformed the overall market and rivals.
  • With new product launches, Elanco looks to grow revenue.
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Today more than ever, pet owners view their pets as irreplaceable members of their families and lives, and it's thanks to this that we continue to see such incredible growth within the pet care community. – American Pet Products Association

Elanco Animal Health Inc. (NYSE:ELAN) is set to become the second largest animal health company in the world when it closes a deal to buy Bayer’s (OTCPK:BAYZF) animal health business later this year. ELAN has severely underperformed its rivals lately but looks ready to jump ahead, and now is a good entry point.

One of Elanco's strengths is innovation and making new products successful. New products that were launched since 2015 now account for 14% of total revenue, which is a 60% jump from last year. Sales of these new products grew 65% in the 4th quarter. The Bayer combination will give Elanco 25 new launches to add to its portfolio. Given their experience with managing new launches, management expects these to immediately add to sales and revenue numbers.

Another innovation Elanco is having success with is developing a physical retail and ecommerce store for pets in the US, instead of only selling through veterinarians. These alternative channels have more than doubled sales in the past two years as consumers like to take shopping and price into their own hands.

ELAN is currently trading at a PE ratio of 23.3, which is well below its historical average of 27.7. Compared to its rivals, it also looks cheap with Zoetis (ZTS) Inc. at 34.3 and IDEXX Laboratories (IDXX) at 54.4. Elanco’s 4th quarter earnings were in line with estimates, even though they missed on revenue. One of the drags on revenue was the cost of exiting certain businesses. In order to buy Bayer’s unit, Elanco must divest of 4 products, which

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This article was written by

Michael A. Gayed, CFA profile picture
Michael A. Gayed is portfolio manager, and author of five award-winning research papers on market anomalies and investing. He has a BS with a double major in Finance & Management from NYU Stern School of Business, and is a CFA Charterholder. Michael runs the investing group The Lead-Lag Report, focused on helping investors outperform in all market conditions. It offers a tactical, data-driven approach to investing, to achieve long-term success even in the face of uncertainty. With increasing market volatility, it's essential to understand risk-on/risk-off signals, seize high-yield opportunities, and leverage award-winning research to maximize returns. Learn More.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

This writing is for informational purposes only and Lead-Lag Publishing, LLC undertakes no obligation to update this article even if the opinions expressed change. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. It also does not offer to provide advisory or other services in any jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Lead-Lag Publishing, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

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Comments (17)

HaroldRamis profile picture
unnoticed ?

this dog (pun intended) has stunk up the place
Josh Borenstein profile picture
Meh just get best in breed for animal healthcare, which is ZTS and IDXX.
Bruce Roberts profile picture
SHAREHOLDER ALERT: Pomerantz Law Firm Investigates Claims on Behalf of Investors of Elanco Animal Health Incorporated – ELAN
Love the idea but don't like the market reaction today. Value trap?
HaroldRamis profile picture
"My award-winning market research gives you everything you need to know each day, so you can be ready to act when it matters most."

Who gave you an award ?
That's a good question LOL
HaroldRamis profile picture
good questions rarely get good answers
HaroldRamis profile picture
lol, another stiff
They missed, lets see the er call
tssai98 profile picture
Elanco had an Eteam member join them from Bayer. I wonder if the talent acquisition would help boost the companies bottom line strategically
A lot of debt to overcome. Acquisitions have a bad habit of under performing and about 2/3rds fail. Good price point, but the debt and risks of an acquisitions, think I will watch it for a while.
DL Webb profile picture
Michael, Thanks for the tip. Four Insiders also bought shares since Feb. 28 at market.
navyair profile picture
I certainly hope so. I bought it awhile back because of the Bayer purchase and all it has done is trend lower. I don't have a lot of $ tied up in it but it sure hasn't done much. No dividend and muddling about doesn't give me great confidence in their bottom line ability.
nsm0002 profile picture
What does not paying a dividend have to do with bottom line ability?!
Agree with nsm0002. I subscribe to the author’s thesis on ELAN and I’m long ELAN myself. I wish it paid a dividend but I’d rather they use that cash to fund the Bayer acquisition, integration of these assets and maybe another small acquisition or two. It’s otherwise a “slow growth” stock and there are plenty of other slow growers with dividends to choose from. The two big questions really are whether consumers continue to invest in companion animal (looking good here relative to adoptions) and what lies ahead for livestock (I have no idea).
HaroldRamis profile picture

is that what they call dart trowing these days ?
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