Amneal (AMRX)

Pharmaceutical company Amneal Pharmaceuticals (NASDAQ:AMRX) missed Wall Street’s revenue expectations in Q1 CY2025, but sales rose 5.5% year on year to $695.4 million. On the other hand, the company’s full-year revenue guidance of $3.05 billion at the midpoint came in 0.8% above analysts’ estimates. Its non-GAAP profit of $0.21 per share was 43.2% above analysts’ consensus estimates.

Company Overview

Founded in 2002 and growing into one of America's largest generic drug producers, Amneal Pharmaceuticals (NASDAQ:AMRX) develops, manufactures, and distributes generic medicines, specialty branded drugs, biosimilars, and injectable products for the U.S. healthcare market.

The generic pharmaceutical industry operates on a volume-driven, low-cost business model, producing bioequivalent versions of branded drugs once their patents expire. These companies benefit from consistent demand for affordable medications, as they are critical to reducing healthcare costs. Generics typically face lower R&D expenses and shorter regulatory approval timelines compared to branded drug makers, enabling cost efficiencies. However, the industry is highly competitive, with intense pricing pressures, thin margins, and frequent legal challenges from branded pharmaceutical companies over patent disputes. Looking ahead, the industry is supported by tailwinds such as the role of AI in streamlining drug development (reverse engineering complex formulations) and manufacturing efficiency (optimize processes and remove inefficiencies). Governments and insurers' focus on reducing drug costs can also boost generics' adoption. However, headwinds include escalating pricing pressure from large buyers like pharmacy chains and healthcare distributors as well as evolving regulatory hurdles.

Amneal's primary competitors in the generic pharmaceutical market include Teva Pharmaceutical Industries, Viatris (formerly Mylan), Sandoz Group, and Sun Pharmaceutical Industries. In the specialty pharmaceutical segment, Amneal competes with companies like Supernus Pharmaceuticals and Alkermes, while its AvKARE division faces competition from major pharmaceutical wholesalers such as Cardinal Health, McKesson, and Cencora (formerly AmerisourceBergen).

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 $2.83 billion in revenue over the past 12 months, Amneal 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. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Thankfully, Amneal’s 11% annualized revenue growth over the last five years was decent. Its growth was slightly above the average healthcare company and shows its offerings resonate with customers.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. Amneal’s annualized revenue growth of 11.6% over the last two years aligns with its five-year trend, suggesting its demand was stable.

This quarter, Amneal’s revenue grew by 5.5% year on year to $695.4 million, missing Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 8.5% over the next 12 months, a deceleration versus the last two years. Still, this projection is admirable and indicates the market sees success for its products and services.

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after subtracting all core expenses, like marketing and R&D.

Amneal was profitable over the last five years but held back by its large cost base. Its average operating margin of 5.5% was weak for a healthcare business.

On the plus side, Amneal’s operating margin rose by 8.7 percentage points over the last five years, as its sales growth gave it operating leverage. This performance was mostly driven by its recent improvements as the company’s margin has increased by 16.4 percentage points on a two-year basis.

In Q1, Amneal generated an operating profit margin of 14.4%, up 16.1 percentage points year on year. This increase was a welcome development and shows it was more efficient.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Amneal’s EPS grew at a remarkable 9.7% compounded annual growth rate over the last five years. Despite its operating margin expansion during that time, this performance was lower than its 11% annualized revenue growth, telling us that non-fundamental factors such as interest and taxes affected its ultimate earnings.

We can take a deeper look into Amneal’s earnings to better understand the drivers of its performance. A five-year view shows Amneal has diluted its shareholders, growing its share count by 119%. This dilution overshadowed its increased operating efficiency and has led to lower per share earnings. Taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q1, Amneal reported EPS at $0.21, up from $0.14 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 Amneal’s full-year EPS of $0.65 to grow 7.2%.

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.

Amneal has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 8.8% over the last five years, slightly better than the broader healthcare sector.

Taking a step back, we can see that Amneal’s margin dropped by 12.1 percentage points during that time. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. If the longer-term trend returns, it could signal increasing investment needs and capital intensity.

Amneal broke even from a free cash flow perspective in Q1. This result was good as its margin was 1.2 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends are more important.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Amneal historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 3%, 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. Over the last few years, Amneal’s ROIC has increased. This is a good sign, and if its returns keep rising, there’s a chance it could evolve into an investable business.

Amneal reported $59.19 million of cash and $2.55 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $645.1 million of EBITDA over the last 12 months, we view Amneal’s 3.9× net-debt-to-EBITDA ratio as safe. We also see its $249.8 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Amneal blew past analysts’ EPS expectations this quarter. We were also glad its full-year revenue guidance slightly exceeded Wall Street’s estimates. On the other hand, its revenue missed significantly and its full-year EPS guidance fell slightly short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 11.3% to $6.86 immediately following the results.

Updated: May 22, 2025 at 11:45 PM EDT

Are you wondering whether to buy Amneal or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

Amneal isn’t a terrible business, but it doesn’t pass our quality test. Although its revenue growth was good over the last five years, it’s expected to deteriorate over the next 12 months and its cash profitability fell over the last five years. And while the company’s rising returns show management's prior bets are at least better than before, the downside is its mediocre ROIC lags the market and is a headwind for its stock price.

Amneal’s P/E ratio based on the next 12 months is 10.3x. This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $11.67 on the company (compared to the current share price of $7.49).

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.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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