Endo Pharmaceuticals (ENDP)

Adding a little Percocet to the portfolio. Pharma dealing with various pain control products offers strong balance sheet with high ROE; likely to show relative strength later in the summer in advance of FDA decision on marketing application for NEBIDO - buyer around $18

The analysis presented is based on a current price of $17.46.

Except for 2006, the EPS has been growing since 2002. Over that period, the compounded annual growth (CAGR) has been 39%. The return on equity (ROE) has exceeded 15% for four of the last five years, and the free cash flow has been positive and generally increasing since at least 2001.

Before I look at the valuations, I look at three indicators of financial safety. For this stock, all three are quite good. The Altman Z is 3.9; below 1.8 is risky, above 3 is the safe range. The Piotroski F is 8; 2 or below indicates caution, while 8 or 9 indicates that the stock is expected to rise within the next year. The Sloan accrual is -4.85; 5 or higher is high risk, while -5 or lower is excellent.

I use more than one valuation method to gauge intrinsic value; the first three all provide a substantial margin of safety (MOS). The first three are standards in the valuation literature. The estimate based on Graham’s formula was $63 (72% MOS). The Earnings Power Value (value of the firm) was estimated, on a per share bases, to be $225 (92% MOS). The Discounted Cash Flow estimate valued the stock at $72 (76% MOS).

The last two were based on a spreadsheet found on the AAII website; these are designed to mimic Buffett’s valuation methodology. One is based on projecting EPS growth 10 years into the future based on past EPS growth; I discount the resulting valuation to reflect the price at which the stock will realize a compounded earnings (including dividends when applicable) return of 15%. Based on this method the target purchase needs to be below $11, and at the current price is above that value. The EPS growth assumption would need to be increased from the program generated 12.5% to about 21% for the valuation to exceed the current price; given that the EPS CAGR is 37%, that would not be an unreasonable adjustment to the model.

The second is based on estimating EPS growth through the sustainable growth rate. The per-share projected book value is estimated by taking the previous year’s book value, adding EPS and subtracting dividends (when applicable). The projected EPS is estimated by multiplying the projected book value by the average Return on Equity, and the projected dividend is estimated by multiplying the projected EPS by the average payout ratio. I then discount the resulting valuation to reflect the price at which the stock will realize a compounded earnings return of 15%. Based on this method the target purchase needs to be below $11, and at the current price is above that value. The ROE growth assumption would need to be increased from the program generated 17.2% to about 22% for the valuation to exceed the current price; given that the 5-year average ROE is 20% (with three of those years rounding to at least 22%), that would be a marginally acceptable adjustment to the model.

To ascertain that the price is attractive to me, I take one more thing into consideration. At the current price, would I expect an immediate 15% return on my investment based on earnings and dividends? In this, there are no dividends, and the EPS represents about 12% of the share price; the price would need to $14.13 to meet this criterion.

Although I have enough concerns about ENDP for my real portfolio, it rates to be a good investment for CAPS purposes.

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

Pain-free growth ahead.

Good financials. Seems cheap

As always, people will pay to stop pain. Why not pay less...especially if the government gets involved.

A recent pick by a CAPS Top-10 + C or better score in Navellier PG.

as long as people are in pain this type of company will survive. these guys are in a good position to do well with the health care reforms that are promised.

Mid cap value play. 780M cash vs. 470M debt, forward P/E 2010 is around 6, est. growth rate is 10% for next 5 years.
Recent earnings estimates:

CurrQtr NextQtr CurrYr NextYear
Mar-09 Jun-09 Dec-09 Dec-10
----------------------------------------------------------------------------------
Current 0.63 0.65 2.63 2.88
7 Days Ago 0.63 0.64 2.63 2.88
30 Days Ago 0.63 0.64 2.64 2.88
60 Days Ago 0.61 0.64 2.60 2.84
90 Days Ago 0.60 0.64 2.61 2.92

Actually beat the 0.63 est. for Mar-09 by 0.04, excluding the buyout costs for Indevus.

I made this pick based of the strong fundamentals of the company. This stock is current rated as one of the best picks out of the 4218 companies analyzed at anticitrade.com. For more information see www.anticitrade.com.

I'm bullish on Generics because Healthcare costs are rising and avg income has been falling, which means that everyone is thirsty for a good bargain. This stock has good profitability and looks to be a good buy under $18. Obama has promised to have our Healthcare System overhauled by the end of the year and this is one stock that should see a benefit. Also tenmiles one of my favorite members just picked this to outperform. Crowd sourcing rocks!

Joel Greenblatt/Magic Formula pick, 3/30/09

I rode IDEV.. might as well keep them running with their new daddy.. This is truly a potential 5-10 bagger

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.

Mgc Formula stock with 10/12 CAPShot. My testing of this screen so far has yielded some big winners (ghm, ctcm, qxm)

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

eps acceleration&growth / value / recent price strength (4w)

Joel Greenblatt Pick

Screened some Magic Formula stocks through my brain and ended up with 10 new picks.