Phibro Animal Health (PAHC)

Animal health products manufacturer Phibro Animal Health (NASDAQ:PAHC) missed Wall Street’s revenue expectations in Q1 CY2026, with sales flat year on year at $347.8 million. On the other hand, the company’s outlook for the full year was close to analysts’ estimates with revenue guided to $1.46 billion at the midpoint. Its non-GAAP profit of $0.63 per share was 8.3% below analysts’ consensus estimates.

Company Overview

With a portfolio of approximately 800 product lines serving farmers and veterinarians in 90 countries, Phibro Animal Health (NASDAQ:PAHC) develops, manufactures, and markets health products for livestock and companion animals, including antibacterials, vaccines, nutritional supplements, and mineral additives.

Looking ahead, the branded pharmaceutical 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.

Phibro Animal Health competes with several larger global animal health companies, including Zoetis, Elanco Animal Health, Merck Animal Health (a division of Merck & Co.), Boehringer Ingelheim Animal Health, and Ceva Santé Animale. In the mineral nutrition space, they compete with specialty minerals companies like Southeastern Minerals and other feed ingredient suppliers.

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 just $1.4 billion in revenue over the past 12 months, Phibro Animal Health is a small company in an industry where scale matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Phibro Animal Health grew its sales at a decent 11.9% compounded annual growth rate. Its growth was slightly above 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. Phibro Animal Health’s annualized revenue growth of 18.3% over the last two years is above its five-year trend, suggesting its demand recently accelerated.

This quarter, Phibro Animal Health’s $347.8 million of revenue was flat year on year, falling short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 6% over the next 12 months, a deceleration versus the last two years. Despite the slowdown, this projection is above the sector average and indicates the market sees some success for its newer products and services.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Phibro Animal Health was profitable over the last five years but held back by its large cost base. Its average operating margin of 8.4% was weak for a healthcare business.

On the plus side, Phibro Animal Health’s operating margin rose by 3.1 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 5.5 percentage points on a two-year basis.

This quarter, Phibro Animal Health generated an operating margin profit margin of 11.4%, up 1.8 percentage points year on year. This increase was a welcome development and shows it was more efficient.

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.

Phibro Animal Health’s EPS grew at an astounding 17.1% compounded annual growth rate over the last five years, higher than its 11.9% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Phibro Animal Health’s earnings to better understand the drivers of its performance. As we mentioned earlier, Phibro Animal Health’s operating margin expanded by 3.1 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q1, Phibro Animal Health reported adjusted EPS of $0.63, in line with the same quarter last year. This print missed analysts’ estimates, but we care more about long-term adjusted EPS growth than short-term movements. Over the next 12 months, Wall Street expects Phibro Animal Health’s full-year EPS of $2.47 to grow 17.3%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Phibro Animal Health has shown mediocre cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 1.2%, subpar for a healthcare business.

Taking a step back, an encouraging sign is that Phibro Animal Health’s margin expanded by 2.4 percentage points during that time. We have no doubt shareholders would like to continue seeing its cash conversion rise as it gives the company more optionality.

Phibro Animal Health’s free cash flow clocked in at $35.41 million in Q1, equivalent to a 10.2% margin. This cash profitability was in line with the comparable period last year and above its five-year average.

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).

Although Phibro Animal Health hasn’t been the highest-quality company lately, it historically found a few growth initiatives that worked. Its five-year average ROIC was 11.8%, higher than most healthcare businesses.

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. Uneventfully, Phibro Animal Health’s ROIC has stayed the same over the last few years. Given the company’s underwhelming financial performance in other areas, we’d like to see its returns improve before recommending the stock.

We enjoyed seeing Phibro Animal Health beat analysts’ full-year EPS guidance expectations this quarter. We were also glad its full-year EBITDA guidance exceeded Wall Street’s estimates. On the other hand, its revenue missed and its EPS fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock remained flat at $37.29 immediately after reporting.

Before investing in or passing on Phibro Animal Health, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

Phibro Animal Health isn’t a terrible business, but it isn’t one of our picks. Although its revenue growth was good over the last five years, it’s expected to deteriorate over the next 12 months and its subscale operations give it fewer distribution channels than its larger rivals. And while the company’s astounding EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its low free cash flow margins give it little breathing room.

Phibro Animal Health’s P/E ratio based on the next 12 months is 12.9x. This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $43 on the company (compared to the current share price of $37.29).

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.