Should Consider Disposing Your Emergent BioSolutions (EBS) Shares?

Carillon Tower Advisers, an investment management firm, published its “Carillon Eagle Small Cap Growth Fund” second quarter 2021 investor letter – a copy of which can be downloaded here. Small-cap stocks extended their recent run of success in the second quarter, advancing for the fifth consecutive quarter following the selloff in the early stages of the pandemic. Among the two style indexes, the Russell 2000® Growth Index (up 3.92%) lagged its Russell 2000® Value Index (up 4.56%) counterpart once again in the period, in what has become a common theme as of late. Individual sector returns across the Russell 2000 Growth were nearly all positive, with energy (up 24.93%) leading the way, despite its relatively modest weighting in the benchmark. You can take a look at the fund’s top 5 holdings to have an idea about their top bets for 2021.

In the Q2 2021 investor letter of Carillon Tower Advisers, the fund mentioned Emergent BioSolutions Inc. (NYSE: EBS) and discussed its stance on the firm. Emergent BioSolutions Inc. is a Rockville, Maryland-based biopharmaceutical company with a $3.06 billion market capitalization. EBS delivered a -36.38% return since the beginning of the year, while its 12-month returns are down by -43.33%. The stock closed at $57.47 per share on September 16, 2021.

Here is what Carillon Tower Advisers has to say about Emergent BioSolutions Inc.  in its Q2 2021 investor letter:

Emergent BioSolutions is a manufacturer of vaccines, therapeutics, and devices that are used to address public health threats. The firm’s main growth engine is its contract development and manufacturing organization (CDMO), which enabled the company to reach manufacturing agreements with some major players in the COVID-19 vaccination rollout. Unfortunately, considerable issues surrounding the manufacturing of the Johnson & Johnson vaccine at one of the firm’s facilities calls into question the future growth trajectory of their CDMO business and subsequently caused a selloff of their shares. We no longer hold the stock.”

Based on our calculations, Emergent BioSolutions Inc. (NYSE: EBS) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. EBS was in 15 hedge fund portfolios at the end of the first half of 2021, compared to 13 funds in the previous quarter. Emergent BioSolutions Inc. (NYSE: EBS) delivered a -5.88% return in the past 3 months.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

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Disclosure: None. This article is originally published at Insider Monkey.