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“Now, for a long time botox, made by Allergan, a stock you know we like, has been synonymous with smooth skin. But now Medicis we’ve likened, MRX as the Pepsi to Allergan’s Coke, has come out with a new treatment called dysport that aims to give botox a run for its money…

Medicis beat Wall Street’s consensus earnings estimates by eight cents per share last quarter and they have serious growth. Then shortly after the quarter on March 10th Medicis boosted its quarterly dividend from 4 cents to 6 cents. I know the yield’s just 1%. But we know dividend hikes are an important sign of strength in a company…

It’s still trading at just 12 times 2011 earnings…much cheaper than Allergan at 17 times earnings, even though they really have similar growth rates, although Allergan’s got a more diversified portfolio. Plus the company has $554 million in cash on its balance sheet. Just $169 million in debt. We’re talking about $9.25 per share of cash. That’s a third of the share price. I think Medicis could close the gap with Allergan as the economy rebounds and both companies take advantage of our vanity. That said, a lot of competition in this business.” — CNBC’s Mad Money 3/15/2010

On Monday night, Jim Cramer interviewed Jonah Shacknai CEO of Medicis Pharmaceuticals (MRX) about the prospects for his company’s stock. With the stock trading near 52-week highs and advancing 156% in the past twelve months, it is clear that the company is doing a lot of things right, but investors need to know whether the impressive performance will continue. Medicis’ fastest growing product is dysport the primary competitor to Allergan’s (NYSE:AGN) botox wrinkle treatment, which is far cheaper and even offers a rebate for unsatisfied customers. Shacknai said that since they began running this promotion, just mere weeks ago, orders have as much as doubled. This aggressive pricing and execution is helping Medicis close the gap on Allergan in this growing market for noninvasive cosmetic treatments.MRX

Just last week, we wrote about the fact that botox received FDA approval for an actual medical treatment rather than cosmetic uses (Allergan Gets FDA Approval: Botox Has a Medical Use?!). To be clear, Cramer made the case that Allergan does have a more diverse set of drugs available than does Medicis, and there are concerns about generic competition for Medicis’ top selling drug, acne treatment Solodyn. However, an investor has to determine if this warrants the far richer valuation for Allergan over Medicis. Based on current consensus analysts’ estimates Medicis trades for just over 12x 2011 earnings and since 2006 has grown EPS by an average of 17% per year, and as Cramer notes they currently have about $9 per share in cash on the books. By contrast, Allergan trades for more than 17x 2011 earnings and over the same period has grown earnings by an average of 15% per year, which is still impressive.

We wrote last week that Allergan is rated Fairly Valued according to our methodology, but Medicis was upgraded to Undervalued as of just two weeks ago. Over the last ten years MRX has normally traded for a price-to-cash earnings multiple of 17.2x to 34.6x, but at the current level is well below that range at 13.8x. Similarly, in terms of price-to-sales per share MRX currently commands a multiple of 2.61x, which compares favorably to the historically normal range of 3.33x to 6.24x. Revenue growth in the current year is estimated to be 20%, which according to the CEO’s comments may be conservative. With Medicis’ strengthening fundamentals, we think the current price is actually undervaluing the company even as it sits near its highest point in more than two years.

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