Jazz Pharmaceuticals (JAZZ)

Biopharma company Jazz Pharmaceuticals (NASDAQ:JAZZ) announced better-than-expected revenue in Q3 CY2025, with sales up 6.7% year on year to $1.13 billion. The company expects the full year’s revenue to be around $4.23 billion, close to analysts’ estimates. Its non-GAAP profit of $8.13 per share was 39% above analysts’ consensus estimates.

Company Overview

Originally founded in 2003 and now headquartered in Ireland following a 2012 tax inversion merger, Jazz Pharmaceuticals (NASDAQGS:JAZZ) develops and markets medicines for sleep disorders, epilepsy, and cancer, with a focus on treatments for patients with limited therapeutic options.

The specialty pharmaceutical industry relies on a high-cost, high-reward business model, driven by substantial investments in research and development to create innovative, patent-protected drugs for niche diseases. Successful products can generate significant revenue streams over their patent life, and the larger a roster of niche drugs, the stronger a moat a company enjoys. However, the business model is inherently risky, with high failure rates during clinical trials, lengthy regulatory approval processes, and competition from generic and biosimilar manufacturers once patents expire. These challenges, combined with scrutiny over drug pricing, create a complex operating environment. Looking ahead, the industry is positioned for tailwinds from advancements in precision medicine, increasing adoption of AI to enhance drug development efficiency, and growing global demand for treatments addressing chronic and rare diseases. However, headwinds include heightened regulatory scrutiny, pricing pressures from governments and insurers, and the looming patent cliffs for key blockbuster drugs. Patent cliffs bring about competition from generics, forcing branded pharmaceutical companies back to the drawing board to find the next big thing.

Jazz Pharmaceuticals' competitors include UCB Pharma in sleep disorders, GW Pharmaceuticals (now part of Curalevy) in epilepsy treatments, and pharmaceutical companies like PharmaMar, Takeda, and Bristol Myers Squibb in oncology therapeutics.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $4.16 billion in revenue over the past 12 months, Jazz Pharmaceuticals has decent scale. This is important as it gives the company more leverage in a heavily regulated, competitive environment that is complex and resource-intensive.

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Luckily, Jazz Pharmaceuticals’s sales grew at a solid 12.8% compounded annual growth rate over the last five years. Its growth beat the average healthcare company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within healthcare, a half-decade historical view may miss recent innovations or disruptive industry trends. Jazz Pharmaceuticals’s recent performance shows its demand has slowed as its annualized revenue growth of 4.7% over the last two years was below its five-year trend.

This quarter, Jazz Pharmaceuticals reported year-on-year revenue growth of 6.7%, and its $1.13 billion of revenue exceeded Wall Street’s estimates by 1.4%.

Looking ahead, sell-side analysts expect revenue to grow 6.2% over the next 12 months, an improvement versus the last two years. This projection is above average for the sector and indicates its newer products and services will catalyze better top-line performance.

Jazz Pharmaceuticals was profitable over the last five years but held back by its large cost base. Its average operating margin of 4.8% was weak for a healthcare business.

Analyzing the trend in its profitability, Jazz Pharmaceuticals’s operating margin decreased by 22.2 percentage points over the last five years. The company’s two-year trajectory also shows it failed to get its profitability back to the peak as its margin fell by 17 percentage points. This performance was poor no matter how you look at it - it shows its expenses were rising and it couldn’t pass those costs onto its customers.

This quarter, Jazz Pharmaceuticals generated an operating margin profit margin of 5.1%, down 19.6 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for Jazz Pharmaceuticals, its EPS declined by 8.7% annually over the last five years while its revenue grew by 12.8%. This tells us the company became less profitable on a per-share basis as it expanded.

We can take a deeper look into Jazz Pharmaceuticals’s earnings to better understand the drivers of its performance. As we mentioned earlier, Jazz Pharmaceuticals’s operating margin declined by 22.2 percentage points over the last five years. Its share count also grew by 9.5%, meaning the company not only became less efficient with its operating expenses but also diluted its shareholders.

In Q3, Jazz Pharmaceuticals reported adjusted EPS of $8.13, up from $6.61 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Jazz Pharmaceuticals’s full-year EPS of $8.16 to grow 151%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Jazz Pharmaceuticals has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the healthcare sector, averaging 29.5% over the last five years. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.

Taking a step back, we can see that Jazz Pharmaceuticals’s margin expanded by 4.3 percentage points during that time. This shows the company is heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability fell.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Jazz Pharmaceuticals historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 1.6%, lower than the typical cost of capital (how much it costs to raise money) for healthcare companies.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Jazz Pharmaceuticals’s ROIC has stayed the same over the last few years. If the company wants to become an investable business, it must improve its returns by generating more profitable growth.

Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.

Jazz Pharmaceuticals’s $5.41 billion of debt exceeds the $2.05 billion of cash on its balance sheet. Furthermore, its 5× net-debt-to-EBITDA ratio (based on its EBITDA of $652.6 million over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Jazz Pharmaceuticals could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope Jazz Pharmaceuticals can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

It was good to see Jazz Pharmaceuticals beat analysts’ EPS expectations this quarter. We were also excited its full-year EPS guidance outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this was a solid print. The stock remained flat at $137.22 immediately following the results.

Updated: December 4, 2025 at 10:47 PM EST

When considering an investment in Jazz Pharmaceuticals, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

Jazz Pharmaceuticals’s business quality ultimately falls short of our standards. Although its revenue growth was good over the last five years, it’s expected to deteriorate over the next 12 months and its declining EPS over the last five years makes it a less attractive asset to the public markets. And while the company’s powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits, the downside is its declining adjusted operating margin shows the business has become less efficient.

Jazz Pharmaceuticals’s P/E ratio based on the next 12 months is 7.5x. While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $208.50 on the company (compared to the current share price of $166.33).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.