Elanco stock (NYSE: ELAN) experienced a significant drop of 20% on June 27 after the company announced a delay in the expected approval of two of its drugs. The delay includes Zenrelia, a drug for inflammatory conditions in dogs, which is now anticipated to be approved in the third quarter of this year, and Ceredelio Quattro, a parasiticide, expected to be approved in the fourth quarter. Additionally, Zenrelia may come with a safety warning label. Despite these setbacks, Elanco’s management remains confident in their ability to reach sales targets of $600 million to $700 million from new products by 2025. The company also raised its outlook for new product sales in 2024.
However, the delay and potential warning label for Zenrelia raised concerns among investors, leading to a 5% decline in ELAN stock for the year. Over a longer period, the stock has dropped by 50% from early 2021 to around $15 currently, underperforming the S&P 500. ELAN has consistently lagged behind the broader market in each of the last three years, with negative returns in 2021 and 2022 but a small gain in 2023. In comparison, the S&P 500 saw positive returns in 2021 and 2023 but a decline in 2022.
Many stocks, including heavyweights in the Health Care sector and megacap stars, have found it challenging to outperform the S&P 500 in recent years. In contrast, the Trefis High Quality Portfolio, consisting of 30 stocks, has outperformed the benchmark index every year. The HQ Portfolio has provided better returns with less risk, offering a more stable performance compared to individual stocks. This has led to a positive performance for the portfolio overall.
Looking ahead, the question arises whether Elanco could face a similar situation going forward and underperform the S&P 500 in the next 12 months, or if it will see a recovery. From a valuation standpoint, ELAN stock appears attractive, trading at a lower P/S ratio than its historical average. This suggests there is potential for the stock to rise by over 25% to reach $18 if it returns to its historical valuation multiple. The current uncertain macroeconomic environment, with factors like high oil prices and elevated interest rates, may impact the stock’s performance.
While ELAN stock shows potential for growth, it is important to consider how Elanco’s peers are performing on key metrics. Comparing the company to its competitors across industries can provide valuable insights for investors. Trefis Market Beating Portfolios offer investment opportunities based on thorough analysis and research, providing a structured approach to investing. By considering various factors and comparisons, investors can make informed decisions about their portfolios.
