Profits on Drugs
- Details
- Published on Thursday, 26 July 2012 13:07
- Written by Sara Nunnally, Editor, Inside Investing Daily
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I called it...
Yesterday I told my Macro Trader readers Watson Pharmaceuticals (WPI:NYSE) would pop on earnings news. I was right.
In the first eight minutes of trading, WPI jumped nearly 4%! WPI climbed above $80 a share for the first time ever.
And there's plenty more room to run.
Here's the deal...
WPI produces generic drugs. It's one of the biggest companies in the world, and it's expanding into lucrative markets like Eastern Europe and Asia with a major acquisition of Actavis. That acquisition put WPI's earnings into the red this quarter.
So why is WPI on the move higher?
This acquisition is going to put big savings into the company's coffers. But that's not all. Earnings still came in well above estimates, and net income jumped 42% for the quarter. All three business segments gained in the second quarter. From Paul Bisaro, President and CEO:
Double-digit growth of non-GAAP EPS, revenue and adjusted EBITDA resulted from solid execution across all three of our businesses. I'm pleased to report that at the halfway point of the year, we are executing well on our strategies to deliver on our stand-alone 2012 growth plan and to drive continued growth over the long term. Global Generics and Anda Distribution revenues increased 26% and 37% respectively, while our Global Brands business delivered $119 million in revenues, an increase of 6%.
By the end of the year, the company expects revenue of $5.5 billion with earnings between $5.65 and $5.85 per share.
But next year is when things really start heating up.
Analysts expect revenue to be $8.05 billion in 2013 with earnings coming in at $8.09 per share... That's a huge increase, on top of the 20% jump expected for 2012 compared to 2011.
WPI's share price is in new territory.
Just look at this growth over the past two years... 86.63%! That's a huge gain for a company with a $10 billion market cap. And the company has both busted and come back and tested former levels of resistance from back in the late 1990s and early 2000s.
What that means is prices have climbed above old all-time highs, and could keep climbing.
Brokers are giving WPI a high rating, and a high price target. Analysts are predicting a share price between $87 and $100.
That's a nice gain from current prices, even though we've already seen a sizable pop today.
Now, prices have come down from their highs this morning. That makes sense.
A jump that big creates a price gap that tends to want to be filled. After prices have slid back down -- as they are -- they'll be free to surge higher again.
Over the next year and a half, WPI's revenue is expected to rise more than 46%.
And that would certainly put share prices in the high half of analysts' target range. We'll see WPI very close to $100.
That'll give my Macro Trader subscribers a nice 48% gain... and I'll take that in this market any day.
Happy Investing,
Sara
P.S. If things pan out the way I expect... folks who get in now... on the ground floor... could cram 10 years of wealth building into the next few months. Not only do I think this outcome is likely, I believe it's a near certainty. You'll understand why in a moment...