Jazz Pharmaceuticals (JAZZ) doesn't have a lot of volume; its average three-month volume is just 716,764. The company is not known for its large intraday pops, nor does it attract an immense amount of coverage from analysts and columnists. Nonetheless, Jazz Pharmaceuticals is a $5 billion company with multi-year gains that are second-to-none. Yet surprisingly, this diversified drug company is also rather affordable, which compliments six different reasons that you may entertain Jazz for your own portfolio.
Product Offerings & Stock Performance
In April of 2009, Jazz Pharmaceuticals was a $34 million company; since then the stock has rallied about 12,000%! In comparison, that performance is about 10 times better than Priceline (PCLN) and six times better than Regeneron Pharmaceuticals (REGN) in the same period, which are two Wall Street favorites.
The company has grown from a modest developing company to a midcap successful commercial company. Today, Jazz has 10 products on the market for indications ranging from narcolepsy, cancer, schizophrenia and OCD, and even pain. Yet, this diversity and the stock's performance are only two reasons to invest in this company.
Incredible Fundamental Performance & Growing Diversification
In Jazz's most recent quarter, the company reported revenue of $208.25 million, which translates into growth of 67.6% year-over-year. The company's top two drugs are Xyrem and Erwinaze; these two drugs grew 50% and 36% respectively year-over-year, and account for the majority of Jazz's annual sales.
For 2013, Jazz expects total revenue of $870 million; Xyrem sales are expected at $565 million and Erwinaze at $175 million. Thus, you can see that these products account for about 85% of total sales. While some investors might consider this a problem, it wasn't too long ago that Xyrem was essentially all of Jazz's sales, and investors worried that such reliance could hinder growth. In 2011, sales of Xyrem alone were 88% of total revenue. Hence, Jazz is not only producing great growth, but is becoming more diversified in the process.
Long-Term Value Alone & As An Acquisition Target
Essentially, we're looking at a company with two fast-growing drugs that are approaching $1 billion in total annual sales. Moreover, Jazz is profitable and trades at just 16 times earnings. In addition, analysts expect future earnings growth of 50%, as Jazz trades with a forward P/E ratio of 10.89. If we look further down the road, Jazz has a PEG ratio (measure five year growth outlook to valuation) of 0.59. Combined, this suggests that Jazz Pharmaceuticals is a very affordable stock at this time, for next year, and for the next five years.
Another reason that you might find Jazz to be attractive is because it's without question a serious acquisition target. Earlier this year, Perrigo (PRGO) acquired Elan (ELN) for $8.6 billion. Prior to this acquisition, Elan was in talks with several potential suitors. The reasons for interest in Elan are because the company had $2 billion in cash, Elan receives a double digit royalty on sales on the multiple sclerosis drug Tysabri and, lastly, is because Elan's headquarters are in Ireland, which has very low corporate tax rates.
Companies in Ireland pay just a 12.5% corporate tax rate, which is nearly one-third of what U.S. companies pay. Ergo, investors shouldn't be surprised that U.S. companies might want to acquire and relocate to such a country. Jazz Pharmaceuticals is also an Irish company; it has cash in the amount of $500 million and net income of nearly $300 million over the last 12 months. Also, with growth of more than 50%, a company such as Royalty Pharma - which nearly acquired Elan - might find Jazz to be worth the price. But if not, then my guess is that several other suitors might find Jazz to be attractive.
6 Reasons to Buy
Luckily, Jazz has not reached some insane valuation priced for an absolute takeover. Instead, Jazz is still affordable based on current fundamentals and growth, thus suggesting that a large takeover premium could be seen.
With these things in mind, Jazz looks like a buy. The company has all of the strengths investors seek in a biotechnology company, but just so happens to be have partially stayed off the general radar. Jazz has 1) several products on the market, 2) strong stock performance, 3) strong growth, 4) balanced revenue, 5) and is at affordable levels, 6) but is a likely acquisition target. For these reasons, you have to like what Jazz has going in its favor.