FBIO stock (Fortress Biotech) analysis, predictions, analyst expectations, value

On Thursday I announced that I added FBIO to my portfolio. Below is the FBIO stock analysis.

Why FBIO stock (Fortress Biotech) piqued my interest?

FBIO stock piqued my interest after reviewing their investor presentation and seeing analyst predictions and the price target for Fortress Biotech.

FBIO has an interesting business model when it buys stakes in the already marketed drugs or interesting drugs that are currently in development. While most pharmaceutical and biotech companies focus solely on developing their own programs, Fortress Biotech (NASDAQ: FBIO) takes a different approach to this classic business model.

Fortress Biotech is a biopharmaceutical company that focuses on identifying promising drug candidates. Once identified, the company acquires, develops, and markets these assets with the help of its partner companies and collaborations with academic research institutions.

To do this, it partners with multiple smaller biotech companies. Below is the summary of the current partnerships:

Source: https://d1io3yog0oux5.cloudfront.net/_fdaeb133d604a2a811737c4d0fcbd691/fortressbiotech/db/640/5686/pdf/FBIO+Corporate+Presentation+-+March+2021+.pdf

Below is the article that speaks to Fortress Biotech's approach:


This makes FBIO a sort of holding company that "buys" future drugs. Some of them may be approved, others might not, some may generate revenue in the future. However, carefully selecting partners and drugs that the partners are developing may be quite a fruitful business model. The benefit to FBIO is that it does not really need to engage in research and development as much. Also, it will continue to use the cash generated in buying other drugs, creating new partnerships, or helping the current partners develop new drugs.

Below is the FBIO's exposure to the drugs that are already in the market or are in the stage of development. As you can see, there is a good mix of drugs targeting different purposes.

Source: https://d1io3yog0oux5.cloudfront.net/_fdaeb133d604a2a811737c4d0fcbd691/fortressbiotech/db/640/5686/pdf/FBIO+Corporate+Presentation+-+March+2021+.pdf

I urge you to read through the full investors presentation at the link above as it has more information about each drug and its addressable market. In addition, on Fortress Biotech website you can view investors' presentations for several of its partners:


Below is the FBIO stock price chart. The stock has been moving up over the past 2 years with higher lows and higher highs. Interesting to note, how the price chart was forming some sort of half of a cup.

Fortress Biotech Financial overview

FBIO has been growing is revenues well over the past 4 years. However, it is still far from generating net income. Also, on a negative side, it has been experiencing lower gross margin which means it has to pay more in Cost of Goods Sold and there is less money left for other expenses (Research and Administration), which eventually means less money in profit.

Over the past few quarters, FBIO revenues were rather declining. Also, its Gross Margin was also dropping. So the most recent outlook is not as strong. So, the most recent year performance was not that good. Hence, we need to look into the future and see if the sales growth will recover.

FBIO Stock Forward Outlook and Predictions

Analysts are predicting slower growth over the course of 2021, and then an accelerating growth as more of the currently developed drugs hit market.

With the growth in sales, the average prediction for EPS is $2.45 for the end of 2024. However, the spread between the highest and lowest preditions is quite big, so there is some uncertainty here.

FBIO stock Key financial ratings/Stock Value

FBIO is unprofitable, so we can't compare its PE Ratio to the US Biotechs industry average.

Profitable biotech companies trade at 25 to 40 times their earnings. Other analysts use a multiple of 30. As you know, I like to use a more conservative 20 PE ratio to account for any risks and to set the targets a bit lower. Using a PE of 20 and the average predicted EPS of $2.45 we can target a price of $48 (the current price is $4.11).

This price may make you jump, so obviously I have to mention risks. The growth in revenues and EPS accounts that at least some of the currently developed drugs will be approved and will hit the market. Also, the predictions for the EPS that are on the higher side of the band in the chart above.

To be on the safer side, I would target EPS of $1.2, which reduces our target price to $24 which is still 6 times the current price. The key to achieve higher EPS is increasing gross margin and pacing the growth in administration and R&D expenses. To remind, from the above tables, FBIO has been reducing expenses, but its Gross Margin has declined over the past few years. In order to achieve EPS of $1.2 by end of 2024 and assuming revenue of $236 million, FBIO would need to do the following:

  1. Grow its R&D and Admin resources by not more than 2% a year.

  2. Increase Gross Margin to at least 85%, which is quite doable if it starts to receive royalties that don't have directs costs attached to them. If Gross Margin is still below 85% investors need to look for a much faster growth in revenues for FBIO.

FBIO stock Analysts Ratings

There are 6 analysts covering FBIO stock. All of them have STRONG BUY ratings for FBIO. The average target price for FBIO stock is $9.92 which is 140% above the current price. The highest target price for FBIO is $22, the lowest is $4.50.

Source: https://www.marketwatch.com/investing/stock/fbio/analystestimates?mod=mw_quote_tab

FBIO stock Institutional Holdings/Holdings Change

As seen below, only 34% of the stock float is owned by institutions. Out of them there is is a mix of hedge funds and mutual funds.

Source: https://simplywall.st/stocks/us/pharmaceuticals-biotech/nasdaq-fbio/fortress-biotech

Moreover, institutions are accumulating shares of FBIO as seen below as more institutions adding to their positions or opening new positions than those reducing.

Source: https://www.nasdaq.com/market-activity/stocks/fbio/institutional-holdings

Disclaimer: As usual, trade at your own risk. I own FBIO stock. I do not suggest you should buy any of the stocks I write about. As usual, please do your own due diligence before investing your own money in any of the stocks I write about. The above analysis is quite basic and just gives ideas for further research. A much deeper analysis is required for each stock, including the analysis of operations, debt, etc. I may sell any of the stocks I say I currently own at any moment before it reaches the targets that I set or keep them for even when they reach the target.


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