On Oct 16, we upgraded our recommendation on
Endo Health Solutions
) to Outperform from Neutral. We are impressed by the company's
strategy to cut costs and optimize resources in order to maximize
long-term growth potential.
Endo Health reported higher-than-expected earnings in the second
quarter of 2013 aided by lower costs. The company raised its
earnings guidance for 2013 in the range of $4.25-$4.55 (old
guidance: $4.10-$4.40 per share). Endo Health also reported
revenues higher than the Zacks Consensus Estimate.
With a major part of its top line likely to be exposed to generic
competition in the next few years, the company is looking towards
cost-cutting initiatives to drive the bottom line. The company is
seeking to lessen the impact of the genericization of key
products by reducing its cost structure. In Jun 2013, Endo Health
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. We are also positive on Endo Health's move to
sell its struggling anatomical pathology business.
We are impressed by Endo Health's growth-by-acquisition
strategy. In Aug 2013, Endo Health announced its intention
to acquire privately-held generics company Boca Pharmacal for
$225 million in cash. The decision to buy Boca Pharmacal is a
smart move by Endo Health as it prepares to combat the decline in
revenues due to genericization of its key painkillers. In Mar
2012, Endo Health joined hands with Mersana Therapeutics Inc. for
the development of next-generation antibody-drug conjugates.
Moreover, in Jan 2012, Endo Health inked a global license and
development agreement with BioDelivery Sciences International
regarding the latter's pain candidate BEMA buprenorphine.
The company had made other major acquisitions over the past
few years. We believe that these acquisitions/deals are steps in
the right direction and would help counter the generic threat
faced by Endo Health.
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The earnings beat in the second quarter of 2013 was the fourth
consecutive one at Endo Health. The third-quarter
for the company is +0.89%. This, along with its Zacks Rank #1
(Strong Buy), makes us confident of a positive earnings surprise
in the third quarter of 2013. Moreover, the Zacks Consensus
Estimate for 2013 advanced 57.6% to $4.59 per share over the last
Other Stocks to Consider
Apart from Endo Health, other companies worth considering include
Isis Pharmaceuticals, Inc.
). All 3 companies, sporting a Zacks Rank #1, offer value and are
worth buying now.