(ENZY) -- pronounced "Enzyme-o-tec" -- is a nutritional ingredients
and medical foods company focused on bio-functional lipid-based
compounds. Areas of focus include infant nutrition and Omega-3
fatty acid supplements.
Founded in Israel in 1998, the $600 million company's products are
marketed to global consumer companies in 30 countries. Besides
their core products, Enzymotec also maintains a strong clinical
trial portfolio and is pursuing medical foods opportunities through
the leveraging of its lipids-related capabilities.
ENZY went public last fall and just closed a 5.4 million secondary
share offering last week that was mostly soaked up by two hedge
funds, Paulson & Co. and Visium Asset Management.
Analysts were raising estimates and price targets after the
company's strong Q4 report in February, which beat EPS expectations
by 67%. Becoming a Zacks #1 Rank, the shares then rallied up to
$29.75 but sold off on the secondary offering which was priced at
Early Stage Growth
According to analysts at Wedbush, "Enzymotec, with its proprietary
technology in lipids and expanding global distribution platform,
will continue to gain market share within three fast-growing
industry segments of nutritional foods & supplements: krill
oil, infant nutrition, and medical foods."
They believe that given the company's high growth prospects, ENZY
should trade at a 20% premium to its peer group average on a PEG
ratio basis. "This translates to a 1.6x 2014 PEG ratio, thus
generating our 12-month price target of $33."
Expertise = Target
I bought shares of Enzymotec recently for the Follow The Money
Portfolio after I saw those two hedge funds pick up over 5 million
shares between them.
I also thought it was an attractive growth opportunity in
health-focused foods. With their proprietary R&D in lipids and
expanding global customer base, I see ENZY as a potentially
attractive take-over target for large pharmaceutical or nutrition
As always, this kind of speculation is just that and isn't
sufficient to build an investment thesis around. But when valuing a
company, institutional investors often model not just a future
stream of cash flows, but also "what will the other guy pay to own
that stream or its technology basis?"
Here's the view from Wells Fargo last month...
"Enzymotec offers investors a robust multi-year growth opportunity.
Leveraging attractive categories including infant nutrition and
health & wellness, we forecast 3-year CAGRS of 55% for net
sales and 70% for EBITDA through 2015, a result of core category
growth and company-specific innovation and distribution."
The analysts come up with a valuation range of $32 to $34 based on
27X 2015 EPS of $1.22, representing over 40% year-over-year growth.
In a market loaded with speculative small cap stocks that are void
of real earnings growth, ENZY offers an established business niche
and solid potential. Clearly this is what Paulson & Co. and
Visium saw too.
Disclosure: I own shares of ENZY for Zacks Follow The Money
Kevin Cook is a Senior Stock Strategist for Zacks.com where he runs
ENZYMOTEC LTD (ENZY): Free Stock Analysis
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