2 European Equities Are Ridiculously Cheap

 |  Includes: ENDP, WCRX
by: Bret Jensen

The crisis that has unfolded in Europe over the summer has crushed equities as well as caused chaos in the credit markets. Several stocks have sold off to ridiculously cheap levels. Two such stocks that have become huge bargains are Warner Chilcott (NASDAQ:WCRX) and Endo Pharmaceuticals (NASDAQ:ENDP).

Warner Chilcott – “Warner Chilcott plc, a specialty pharmaceutical company, focuses on the development, manufacture, and promotion of branded pharmaceutical products in women’s healthcare, gastroenterology, dermatology, and urology segments in North America and western Europe markets”. (Business Description from Yahoo Finance.)

5 reasons WCRX looks like a good bargain at $16:
  1. Warner Chilcottt is selling at the very bottom of its historical valuation range based on P/E, P/B, P/S and P/CF.
  2. It has beat or met earnings estimates each of the last twelve quarters. Its average beat over consensus estimates over the last four quarters is 10%
  3. WCRX is selling at just four times operating cash flow and its forward PE is under 4, which is a 65% discount to its historical average.
  4. WCRX is selling at five-year projected PEG of .45, which is a 50% discount to its five year historical average.
  5. Warner Chilcott is significantly under analysts’ price targets. The median analyst target on WCRX is $26 and S&P has a price target of $22 on Warner Chilcott.
Endo Pharmaceuticals – “Endo Pharmaceuticals Holdings Inc., together with its subsidiaries, operates as a specialty healthcare solutions company in the United States. The company operates in three segments: Branded Pharmaceuticals, Generics, and Devices and Services”. (Business Description from Yahoo Finance.)
5 reasons Endo Pharmaceuticals is a buy at $29 a share:
  1. It is selling at the very bottom of its five-year valuation based on P/S, P/E, P/B and P/CF.
  2. Endo Pharmaceuticals has grown earnings at a 19% annual clip over the past five years and is selling at just 6.5 times this year’s projected EPS.
  3. ENDP is selling at a forward PE of just 5.4, which is a 50% discount to its five- year historical average.
  4. The company has a low beta (.56), is selling at 8 times operating cash flow and consensus earnings estimates for 2011 and 2012 have risen in the last three months.
  5. ENDP is under analyst’s estimates. S&P has a price target of $50 on ENDP and the median analysts’ price target on Endo Pharmaceuticals is $46.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in ENDP over the next 72 hours.