Forest Laboratories: Steady Growth in Sales and Earnings

I have written about Forest Laboratories, Inc. (FRX) before. FRX is a mid-cap player in the biotech and drug markets. It is characterized by steady growth in both sales and earnings. Call this a value play. Its new product pipeline is promising, and several products are now entering Phase 3 trials.

For a detailed analysis of the company, go to https://measuredapproach.wordpress.com.

Highlights:

• Less debt equals less risk. FRX’s debt to equity ratio of 0.00% is exceptional.
• FRX spends an increasing amount on Research & Development to keep its pipeline full. The company has a Price to Research ratio of 10.7, about right for a company of its size.
• To measure growth rate persistence, we average the 3-year, 5-year and 7-year growth rates. Sales growth is 10.47% and the average EPS growth rate is 8.63%. This produces a current PEG of 1.38X.
• The company is showing promising results with their investigational drug linaclotide in two Phase 3 trials.FRX and their partner, Richter Gedeon Nyrt, will start Phase 3 trials for cariprazine, a drug for schizophrenia.

Disclosure: The author is long FRX.

Comments

[Annualgain:]

It's hard to see how any analysis of FRX is complete without some discussion of Lexapro and Namenda patent expirations. The best endorsement of this stock I've ever seen was when it was at $20 earlier this year. The analysis showed that FRX should have roughly $18 per share in cash and no debt on the balance sheet by the time the two big drugs go off-patent in 2012-2013. Now THAT'S what I call value.

Nov 09 08:49 AM

[Lonely Value:]

Forest Labs is worth $40 a share minimum. The primary reason are not the ones you cite however. The company has cash and securities worth more than $3 billion and $1 billion a year in free cash flow until Lexapro goes off patent.

For an excellent treatment of FRX (if I do say so myself) see lonelyvalue.com

Nov 18 03:12 AM