Full Analysis of Amneal (AMRX)

BLUF: Amneal Pharmaceuticals (AMRX) is a pharmaceutical company that is poised for a significant upside following a slew of new drugs approved by both the FDA and China. I wanted to share my bullish thesis on why AMRX looks like a strong investment opportunity right now.
I want to disclose that I remain fully convinced this stock will continue appreciating in value, even after making a significant amount of money form it so far. I purchased 2,500 shares on April 19 at $1.62 per share (166% gain) and 546 contracts (x100) of the Dec 15 '23 $5 calls, which are now worth 0.45 per contracts (128% gain).
So how did I know Amneal was primed to pop? Huge credit goes to my girlfriend – she's a nurse practitioner and tipped me off in April about a drug that was being discontinued by one of Amneal's competitors (this is all public info if you know where to look). This piqued my interest, so I started analyzing Amneal as the company likely to ramp up production of that drug.
Right away, I noticed strange after-hours price action – the stock would jump 10% during the day, then shed 8% after hours. Upon closer inspection, it became clear someone was buying up discounted shares after-hours as the price incrementally crept higher.
Known Drugs that are popping:
Colestipol: Colestipol is used with diet adjustments to reduce 'bad cholesterol' in people with high cholesterol. It belongs to a group of medications called bile acid sequestrants and works by binding bile acids in the intestines, which are then removed from the body.
Vyvanse: Some of you are probably aware that ADHD drugs are in high demand right now and that there’s a shortage, well Amneal received approval for the generic drug.

Now, onto the fundamentals:

Business Overview:

• Fully integrated pharma company focused on generics, specialty drugs, and government distribution. 4th largest generics maker in the U.S.
• A diversified portfolio of ~270 complex products like injectables, inhalants, and topicals.
• Growing specialty segment targeting CNS and endocrine disorders.
• AvKARE acquisition expanded presence in government channels.

Recent Catalysts:

• Q2 beat on revenue ($599M, +7% YoY) and EPS ($0.19).
• Launched authorized generic of Xyrem – key new complex product.
• Got FDA approval for 5 complex generics, including 3 injectables. On track for 30+ launches in 2023.
• Continued biosimilars momentum with 3rd launch, FYLNETRA.
• Submitted ANDAs for 3 more high-value complex products.
• Raised full-year guidance on revenue, EBITDA, and EPS due to robust performance.

Growth Drivers:

• Deep pipeline of pending ANDA approvals for complex generics and biosimilars.
• More authorized generics partnerships like Xyrem.
• Expanding injectables and biosimilars into higher-value products.
• Continued government distribution penetration via AvKARE.
• International expansion is underway in China and Canada.

Financials:

• Solid revenue growth – new 2023 guidance of $2.3B-$2.4B (+11% YoY at midpoint).
• Expanding EBITDA margins, with 2023 EBITDA of $525M-$540M (+18% YoY at midpoint).
• EPS growth from operating leverage. 2023 EPS guidance raised to $0.45-$0.55 (+29% YoY at midpoint).
• Strong cash flow to fund growth and potential shareholder returns.

Valuation:

• Trades at just 7x 2023 EPS guidance midpoint of $0.50. Very reasonable given expected growth.
• EV/EBITDA of 5.5x on 2023 guidance midpoint of $532.5M is a discount to peers.

Institutional Movements:
Several institutional investors adjusted their holdings in AMRX during Q1:

• Swiss National Bank increased its shares by 8.6%.
• Bank of New York Mellon Corp increased its stake by 1.1%.
• MetLife Investment Management LLC grew its position by a notable 169.4%.
• Panagora Asset Management Inc. raised its stake by 109.5%.
• BlackRock Inc., a major player, increased its position by 1.3%.
• Collectively, institutional investors and hedge funds own about 31.82% of the company.

Stock Performance:

• AMRX's shares started at $4.32 on a recent Wednesday, with a recent trend above their average: 50-day average is $3.75 and 200-day average is $2.68.
• Over the past year, the stock ranged from a low of $1.24 to a high of $4.74.
• The company's market cap stands at $1.32 billion, and its stock metrics include a PE ratio of -216.00 and a beta of 1.31.
• Financial ratios include a debt-to-equity of 17.18 and liquidity ratios of 1.12 (quick) and 1.83 (current).

Good Vs. Bad:
Positive Signs:

• Insider Ownership: A significant portion of the company's stock (26.56%) is owned by company insiders. This is typically viewed as a vote of confidence from those who understand the company best.
• Institutional Interest: Various reputable institutional investors have increased their stake in the company, which could indicate a positive sentiment among major players
• Performance Metrics: The company beat its earnings estimates and posted higher revenues than expected in its recent quarterly earnings, which is a bullish sign.
• Strong Return on Equity: Despite a negative net margin, the company has a robust return on equity of 101.26%.

Concerns:

• High Debt-to-Equity Ratio: A ratio of 17.18 suggests that the company is heavily leveraged and may have significant interest payments.
• Negative PE Ratio: The negative PE ratio indicates the company is not profitable from an earnings perspective, which might be a concern for some investors.
• Stock Volatility: A beta of 1.31 suggests that the stock is more volatile than the market. This might lead to more significant price swings.

TLDR: Amneal is an undervalued, high-growth pharma play with multiple near and long-term catalysts, due to it’s fundamentals and new drugs. The disconnect between strong fundamentals and low valuation multiples positions the stock for a breakout.
Positions: 2,500 shares of AMRX546 Dec 15 '23 $5 Call