Why Is Lantheus Stock Dropping?

A sports analyst once observed that when the public is polled about who the best boxer in the world is they answer with who is the best known, Mohammed Ali.

If there is a grain of truth in that statement, it can probably be applied to the world of investing too. Where some of the better known names like Bill Ackman and David Einhorn grab headlines, others actually manage more money but stay under the public radar. 

But in their assets under management lies a clue as to their investing proficiency. Sometimes, the lesser-known money managers oversee larger pools of capital and Farallon Capital Management falls squarely into that category with $19.5 billion in AUM.

So where does this giant money manager sees value at this time? From our analysis, the most undervalued holding in their portfolio is a company called Lantheus Holdings, a healthcare firm specializing in diagnostic medical imaging agents and products. But why is Lantheus stock sliding and is it a buy now?

What Does Lantheus Do?

Lantheus Holdings is a key player in the diagnostics and targeted therapeutics market, and is arguably best-known for its flagship product, PyL, an FDA-approved PSMA-targeted PET imaging agent for prostate cancer.

Its research capabilities span oncology, cardiology and neurology, and includes a pipeline of novel radiopharmaceuticals that are believed to provide clearer imaging for cardiac diseases with the aim of diagnosing earlier and more accurately than is presently possible.

In neurology, the company’s focus is on agents that can cross the blood-brain barrier in order to better manage neurological conditions, where precise imaging is crucial but often challenging.

To-date, the company’s research initiatives have been well complemented by its partnerships and alliances with leading pharmaceutical and biotech companies to accelerate commercialization. These extend to companies specializing in artificial intelligence and machine learning to improve the efficacy and efficiency of diagnostic imaging analysis.

The combination of strong research and alliances has resulted in impressive revenues, particularly stemming from the success of its PyL diagnostic agent for prostate cancer. Management is now focusing on more targeted and effective diagnostic tools that can provide early detection of diseases.

The strategy clearly seems to be working as the financials highlight.

Lantheus Growth Has Been Remarkable

Lantheus revenue growth has been quite astonishing in recent years. The growth rates YoY for the past eight quarters alone have been:

  • Q4 2021: 37.6%
  • Q1 2022: 125.8%
  • Q2 2022: 121.4%
  • Q3 2022: 134.4%
  • Q4 2022: 103.1%
  • Q1 2023: 44.0%
  • Q2 2023: 43.8%
  • Q3 2023: 33.7%

That top line surge in growth has translated to substantial increases in EBIT also. Whereas earnings before interest and taxes were hovering between negative and zero during the 2020-21 period, they have soared into the black to the tune of over $100 million in each of the last three quarters.

So what explains the dichotomy between rising revenues and a sliding share price?

Why Is Lantheus Stock Dropping?

Lantheus stock fell following disappointing trial data results from their new prostate cancer therapy, Lu-PNT2002.

Given that prostate cancer treatment is a flagship revenue generator for the firm, investors were clearly concerned about the predictability of revenues in what has traditionally been seen as the firm’s golden goose.

With LNTH share price down 13% over the past 3 months, arguably the decline has priced in the bad news, and then some.

Among the 9 analysts who cover the stock, the consensus rating remains $92.11 per share, suggesting 69.2% upside potential from present levels.

Even a discounted cash flow forecast sees material upside opportunity to $81 per share, which would equate to approximately 46% upside potential.

Will Lantheus Stock Recover?

Analysts seem hopeful that the stock will bounce back but what fundamental catalyst could lead that to happen?

One primary growth driver could originate from the company’s expansion into theronostics, a field that synergizes diagnostic testing with subsequent targeted therapy.

The dual approach is perceived to be a big leap forward in what the future of personalized medicine looks like because it epitomizes precision healthcare and allows for treatments to be tailored to individual patient profiles based on specific biomarkers.

The integration of diagnostic and therapeutic solutions is designed to both enhance patient care and streamline treatment processes, thereby reducing healthcare costs and simultaneously improving outcomes .

Is Lantheus Stock a Buy?

The overarching reason to buy Lantheus is on a valuation basis. While analysts and a cash flows analysis project substantial upside, it’s worth noting that the price-to-earnings ratio of the stock is already quite elevated at 36x and the price-to-sales (ttm) is 3.2x. Neither multiple is cheap.

Those metrics aside, Lantheus has a great deal going for it. The five year revenue CAGR is 23.1% and while it is forecast to slow down to 13.5% over the next 5 years, that’s still a big number given the high base of $1.2 billion already.

Net income is forecast to explode with a 5-year forecasted CAGR for net income of 86.5%. It’s that figure which will likely come as a surprise to a lot of investors but which is most likely why analysts have stuck to their high price targets.

If management can deliver that kind of profitability growth, it will likely stun the broader investor community in the coming years, and so it’s perhaps no surprise that a savvy multi-billion dollar money manager like Farallon already has a stake in what may well be a bargain-priced healthcare firm now.

The bottom line is that fast revenue growth has translated to already fast-paced profitability growth, and a disproportionate increase in earnings is projected to continue as revenues increase further in the coming years. It appears the share price tumble in recent months has more than discounted the recent news and the upside opportunity relative to downside risk is compelling.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.