Right Again on Generic Drugs
- Details
- Created on Thursday, 01 November 2012 16:42
- Published on Thursday, 01 November 2012 16:42
- Written by Sara Nunnally
- Hits: 481
It's been three months since I've talked to you about Watson Pharmaceuticals (WPI:NYSE), a generic drug maker looking to become the third largest in the world through the acquisition of Swiss company Actavis.
WPI has since received approval for that acquisition and released its third-quarter earnings report.
The company saw double-digit growth again... and shares were up nearly 3% this morning. Indeed, this was the fifth straight quarter of year-over-year double-digit growth, and WPI could see this streak continue.
From the CEO, Paul Bisaro:
We are very pleased that, as we transition from Watson standalone to a larger company following the Actavis acquisition, we have demonstrated outstanding execution of our 2012 business plan. We delivered this performance while we simultaneously focused on integration planning and are now ready to capitalize on our objectives for uniting Watson and Actavis and creating a larger, more powerful global competitor
Net income increased 24.2%, net revenue increased 18.8%, and EBITDA increased 18%.
I'd say that's pretty strong growth. And as a result, analysts are increasing their earnings estimates for next quarter, from $1.42 to $1.50.
That's an 11% bump from third-quarter earnings.
Here's the most important point for my Macro Trader subscribers and me. Global Generics' net revenue jumped 15%, and international net revenue jumped 37%. These figures mean demand for generic drugs is growing in international markets.
And now, with the completion of the Actavis merger, WPI will have access to even more growth.
Its Global Generics business structure gives WPI an "in" to growing markets like Russia, Central and Eastern Europe, Asia and the Middle East. That means 40% of WPI's generics revenue will be coming from outside the U.S.
Just look at WPI's footprint:
This kind of presence means WPI is set to shoot higher. The company's earnings release says its 2013 non-GAAP earnings per share will be 30-40% higher than 2012's.
And its share price has been reflecting this potential.
Over the past year, WPI's share price has gained more than 33%. Analysts have bumped up their price targets to a mean target of $94.64, median target of $98 and a high target of $105.
The truth is, WPI is in new territory. Share prices have never been this high, and the stock is not cheap anymore.
My Macro Trader subscribers sold half of our WPI position at $79.55, and our second half is sitting on a gain of more than 30% with a protective 10% trailing stop. If you're considering getting into WPI, keep these things in mind.
- WPI is not undervalued. Even though the fourth quarter of 2012 and all of 2013 are expected to be good periods of growth you're not getting shares of WPI at a bargain price.
- As WPI shares are breaking new ground, you will have to expect some resistance through the $89 level. Remember, WPI has never been this high, and it will take a lot of momentum to keep climbing.
- WPI has had five quarters of double-digit growth. That history is a lot to live up to, and any shakiness on this front will mean a slip in share prices.
That said, WPI is now the third-largest generic drug company in the world, with access to more than 60 markets, many of them in growth regions like the Middle East and Southeast Asia.
I'm expecting higher share prices, but I'm not expecting a smooth road.
The end of the year will be a big moment for WPI. It means one full quarter of the fully integrated company under its belt, and we'll be able to tell just how much growth Actavis was able to bring to the table.
Until then, we're holding our WPI shares.
Happy Investing,
Sara
P.S. The Middle East Turmoil Could Make You Rich!
As you know, the Middle East is in a period of historic transformation. After decades of living under oppressive dictatorships, the people of the Arab world are rising up to stake their claim to democracy.The good news is, this transformational moment is creating one of the greatest investment opportunities of all time.
Not only is this trade innovative, but it also gives you a unique way to turn the Middle East chaos into a huge payday.
Other Related Articles: