Endo Pharmaceuticals (NASDAQ:ENDP)

Aggressive expansion into urology and generic drugs. Have been expanding with the purchase of smaller companies. Forward P/E of 5.5. Excellent stock price at this level.

The last patent for Lidoderm expires in 2014. Lidoderm is responsible for aroung 35% of current revenues, but more importantly, around 50% of gross profit.
Bracing itself for the Lidoderm's patent expiration, the management started a serious of acquisitions, most notably Qualitest in November 2010, for about 1.2 Billion. Qualitest is a generic drugs company. While this acquisition boosts revenues, it doesn't boost profits as much, since the generics is by nature an industry with lower margins.
Meanwhile, the company's debt went out of control, with net tangible assets of about -3.5 Billion.
In the post Lidoderm era, the companies profits are expected to decline, and this high debt may prove to be a problem.
If one of their current pipeline products will boom, Endo may thrive, but there can be no guarantee for such a scenario.
For now, Endo is a poor value play.

Narcotics will only become more envogue with healthcare reform. Not less. They have a good earnings yield and ROE. I am optimistic. Their products are heavily used in healthcare and they are expanding into generics as well.

Current Parameters
Rev. Growth Rate (last 3 Yrs)
5.00 - 3430.50
EPS Growth Rate (last 3 Yrs)
5.00 - 1121.10
Industry
Drugs
Active Picks
0.00 - 25889.00
CAPS Rating
5 - 5 on 2011-05-16

I opened a position in Endo today based on valuation and growth. My position includes stock and put contracts, for a net entry price of $33.41.

Despite huge appreciation from low $20s in June, Endo is still a very reasonable value play. In the mid-cap drug manufacturing peer group, ENDP has a pretty low P/FCF at just 11.74, and the lowest P/E in the group at just 13. The ROE is second in the group at 21%, and their profit margin is also second in the group at a very healthy 20.62%.

On the sales and earnings fronts, ENDP has consistently grown sales the past 5 years at a clip of nearly 19%, and earnings at 16% annually. Sales Q/Q are up 23% and EPS are up 10.66%. These numbers won't set the world on fire, but I suspect they deserve a better PEG than their current 1.02, and forward P/E of just 8.61.

I believe the company will outperform, and here is why: the FDA approval of Fortesta a couple of weeks ago is a good sign the company is continuing to diversify and bring new products to market, which will also deliver sales and revenue growth. Their acquisition of Qualitest Pharmaceuticals for about $1.2 billion in private equity was completed on December 1st, and looks like it will help boost revenues and further enables Endo to diversify into the generics market. With the transaction complete, it puts Endo on track to hit $1.7B in 2010 revenue, and $2.2 to $2.3B in 2011. Earnings will likely come in around $3.35 to $3.40 for 2010 when they report in Feb., and $4.15 to $4.25 in 2011.

In addition, Endo is investing more into their diagnostics division. CEO David Holveck announced yesterday that Endo has $500M put aside for health information technology and diagnostic tools for cancer and urology, which continues to build on the HealthTronics acquistion (urologic lab services and devices) completed last May.

Looking over 2 years of quarterly reports, we can see that quarterly revenue has climbed from $335M to $444 MRQ. Cash has gone from $394M in March 2009, to $774 MRQ, although cash is down a bit from $992M in June. Receivables have ticked up a bit to $419M, whereas the normal range is $310-$350M. Inventories look steady, now at $95M. Payables have declined some of late, from $178M to $157M, and expenses are rising a bit from $313M to $375. Current liabilities also rose a bit in Sept, from $492M to $601M, while deferred taxes are $23M, which is the lowest in 2 years, and half of what they owed in June. The trend seems to be positive and steady, and cash flow seems pretty clean.

Recent analyst ratings from Oppenheimer rated the stock to outperform, with a target of 40-42, while Standpoint rated them a buy, with a target of 44-48. I won't go on a limb with a price prediction, but I do believe the company will continue or slightly accelerate their growth, which should help power the stock further up the charts.

Value play.

Trading at forward P/E of 8.4 and PEG of 0.7.

Earnings up 36.5% over last year. Sales up 23% over last year. Beat earnings estimates by 2%. Profit margin 22%. ROE 23%. Worth $58.00. Trading at a 65% discount.

watch

Strong pain management drug franchise at a low valuation

Bioniche Life Sciences T.BNC is days from giving Endo Pharma a winning bladder cancer treatment out of PIIIa FDA SPA fast track and a MCC platform for multiple other interventions.

It is a story now but will be a chase the fire truck soon. Endo gave a webcast with Urocidin named as a big one.

For the walking worried patients who will be picked up by the new medical coverage in the US and a less toxic more succesful new generation solution which not only takes on the disease but turns on the patient immune sysytem to help fight and continue to do due diligence.

Good news story and gang buster investment opportunity.

They sell Percocet... what else do you need to know :)

It's cheap. It has a descent balance sheet. I think it could be a takeover target. I think it could be the greatest single idea IF healthcare reform IS passed! Why? Healthcare reform will cause a shortage of doctors. We won't be able to fix health issues, so we will mask health issues will pain medication! People will demand more pain meds. They will say, "my taxes are paying for medication, so I NEED more!" Guess what, they will get more!

Bought at $21.96 and gonna ride it out. I believe this stock will rebound nicely down the road (within 12 to 18 months). In no hurry to let it go.

Stock has been under performing the market this year and is trading at a 33% PE discount to the specialty pharma group. Last weeks analyst upgrade should push the price higher.

strong 5 year ROE& profit margin improvement and still at reasonable PE ratios

An aging population will require lots of pain management.

generic's are going to be a major part of reducing healthcare costs

PEG = 0.64

Baby boomers need meds, insurance carriers want generic. i bought this at 16.50.