Seeking Alpha
Growth, momentum, small-cap, mid-cap
Profile| Send Message|
( followers)

Summary

  • Lannett reported fiscal Q4 2014 earnings and revenue at the top end of the expected range.
  • The company guided fiscal 2015 revenue and gross margin ahead of the current consensus.
  • Reiterating my bullish thesis and raising my price target.

Lannett (NYSE:LCI) reported fiscal Q4 2014 earnings and revenue largely in line with the preannounced numbers last week and ahead of analyst estimates. The company continues to deliver strong growth and major improvements in profitability. Fiscal Q4 EPS was $0.64, a significant increase over $0.12 in fiscal Q4 2013. Revenue in the quarter doubled to $80.6 million. Gross profit margin was 69%, compared to 38% in the same quarter last year. For the full year, revenue increased 81% to $273.8 million, while the adjusted EPS increased 330% to $1.98.

What was more important than the fiscal Q4 results was the guidance for fiscal 2015. Management guided fiscal 2015 revenue between $350 million and $370 million, which is above the current consensus of $349.6 million and also above the previous range of $330 million to $350 million. Gross margin is expected to be between 70% and 72%. The guidance should lead to significantly higher EPS estimates for fiscal 2015 and beyond, and revenue estimates should also trend higher. Given the prior management conservatism, I believe that the company should deliver at least at the top end of its guidance range, and probably even higher. In the table below, you can compare the current consensus estimates, management guidance and my own estimates for fiscal 2015.

Source: Sentieo.com, Management guidance, Author's estimates

The fiscal 2015 guidance fits well into my bullish thesis for Lannett (you can see my previous coverage on Lannett here), and I am raising my price target from $66 to 72$, based on a 2015 EV/EBITDA ratio of 15. The company is growing its top and bottom line rapidly, and further margin expansion should be enough for Lannett to at least keep its current valuation in the next six to twelve months. Recent approvals and product acquisitions are more than likely to offset the potential decline in Digoxin sales and the guidance provides confidence that the future is brighter than it currently seems given the volatility in the share price. Lannett's current valuation assumes almost no growth in the future, as it is valued at 20x its 2014 EPS and 13x its 2015 EPS (based on my estimates), while the forward 2015 P/E based on the current consensus is also low at 16. Analyst estimates are most certainly going to rise in the next couple of weeks based on the strong revenue and margin guidance. There are also two potential catalysts that could drive the share price higher:

1. Lannett is actively talking to acquisition candidates and may buy one of them in the next fiscal year.

2. The company may also do a tax inversion deal which may significantly boost the bottom line given the current tax rate.

Source: Update: Lannett Earnings - Encouraging Fiscal 2015 Guidance