Unique Buying Opportunity For Under The Radar Company

| About: Lannett Company, (LCI)

Summary

Way Oversold Even With Lower 2016 Guidance.

Attractive Option Premiums.

Huge Short Position.

I was getting ready to leave for the day, fighting a terrible cold, but I cannot concentrate and write at home. I did a little browsing and this company popped up. It has gotten tarred and feathered and I think it is overdone, take a read. The description is a little lengthy but I want to include all business lines.

Lannett Company (LCI $18) develops, manufactures, packages, markets, and distributes generic versions of branded pharmaceutical products in the United States. It offers solid oral, extended release, topical, nasal, and oral solution finished dosage forms of drugs that address a range of therapeutic areas, as well as ophthalmic, patch, foam, buccal, sublingual, soft gel, and injectable dosages. The company provides its products for various medical indications comprising glaucoma, muscle relaxant, migraine, anesthetic, congestive heart failure, thyroid deficiency, dryness of the mouth, gout, bronchospasms, hypertension, and gallstone. It also manufactures active pharmaceutical ingredients. Lannett Company, Inc. markets its products under the Diamox, Lioresal, Fioricet, Fiorinal, Fiorinal w/ Codeine #3, Lanoxin, Levoxyl/Synthroid, Salagen, Benemid, Brethine, Dyazide, and Actigall brands. The company sells its pharmaceutical products to generic pharmaceutical distributors, drug wholesalers, chain drug retailers, private label distributors, mail-order pharmacies, other pharmaceutical manufacturers, managed care organizations, hospital buying groups, governmental entities, and health maintenance organizations. It has development and supply agreements with Azad Pharma AG, Aenova of Switzerland, Pharma 2B, the GC Group of Israel, HEC Pharm Group, and Sunshine Lake LLC, as well as with Jerome Stevens Pharmaceuticals, Inc., Cerovene, Symplemed, Inc., and Summit Bioscience LLC.

Let's get down to brass tacks. They lowered their 2016 guidance from $590mm to $560mm, a mere 5% drop. Hardly enough of a reason to run away and hide. Even if Lannett hits the lower end of guidance this year, the company will still see its top line growth improve by 36%. Yes they do have competitive pressures from TEVA and Mylan, and some of their product launches scheduled for 2016 could possibly be pushed into 2017, having an adverse effect on earnings. The delayed launches are only a temporary setback since they'll show up on the revenue line eventually. This increased competitive pressure will presumably having a negative effect on prices. Previous guidance had adjusted gross margin for the fiscal year coming in at approximately 62% to 63%, but management now sees adjusted gross margins in the 60.5% to 61.5% range.

What I cannot overlook is the 75% drop in stock price over the past 52 weeks, and the nearly 30% short position (March 15, 2016). They also have $5+ per share in cash. There is going to be some sympathy rebounds here, I do not want to marry this stock, but if it gets close to $20, then we can write some monthly calls, keep tight stop losses, and net some nice returns over the short term. Here are the analysts ratings to review.

Recommendation Summary*

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Mean Recommendation (this week):

2.7

Mean Recommendation (last week):

2.0

Change:

0.7

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* (Strong Buy) 1.0 - 5.0 (Sell)

Price Target Summary

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Mean Target:

28.90

Median Target:

30.00

High Target:

38.00

Low Target:

18.00

No. of Brokers:

5

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Sometimes the parts are worth more than the whole. If you want to write calls down here after your entry point, take a look at the June $20's paying you an almost 8% premium ($1.40 & implied volatility of 65%). I reiterate, this is not one to marry, lets make some dough and move along. There are many trades to uncover, but I will leave you on a good note: the company received FDA approvals this morning for Abbreviated New Drug Applications (ANDAs) for Potassium Chloride Extended-release Capsules USP, 8 mEq and 10 mEq, the therapeutic equivalent to the reference listed drug of Actavis Labs (NYSE:AGN) and Temozolomide Capsules 5 mg, 20 mg, 100 mg, 140 mg, 180 mg and 250 mg, the therapeutic equivalent to the reference listed drug Temodar Capsules of Merck & Co (NYSE:MRK).

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.