We are reverting to a Neutral recommendation on
Endo Health Solutions
) as we believe that all the positives that led to our previous
Outperform recommendation on the stock are reflected in the
current price. Our target price is $70.00. The stock carries a
Zacks Rank #3 (Hold) in the short run.
Why the Downgrade?
Endo reported higher-than-expected earnings in the third quarter
of 2013 aided by lower costs. However, revenues declined on a
year-over-year basis hurt primarily by lower sales of painkillers
- Opana ER and Lidoderm.
) launched its generic version of Lidoderm in Sep 2013. We
believe revenues will remain under pressure due to
genericization. However, cost-cutting efforts should help the
company achieve its 2013 earnings guidance ($4.60-$4.75 per
In Jun 2013, the company announced that it will trim its work
force by approximately 15%. The move is expected to result in
annual savings of approximately $325 million. The company expects
to realize $150 million savings by Dec 31, 2013. Endo further
stated that the entire $325 million run rate is expected to be
realized by mid-2014, when compared with full-year 2012.
We are impressed by Endo's growth by acquisition strategy. The
impending acquisition of generics company Boca Pharmacal is a
smart move by Endo to strengthen its Qualitest (generics)
portfolio and combat the generic threat over its key products. We
are also positive on Endo's decision to buy Canadian company
Paladin Labs. Moreover, we are encouraged by Endo's move to sell
its struggling anatomical pathology business.
We believe all the above mentioned positive news is already
reflected in the stock price, and hence downgrade the stock to
Neutral from Outperform.
Other Stocks to Consider
Some better-ranked stocks include
). Both these stocks carry a Zacks Rank #1 (Strong Buy).
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ENDO PHARMACEUT (ENDP): Free Stock Analysis
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