Generic drug makers (And those with a combination of branded and generic products) have some of their lowest valuations in a decade by a variety of metrics (P/E, P/S). Given some of the strong secular trends such as an aging population in the West, constraints on government budgets and numerous blockbuster branded pharmaceuticals coming off patent over the next few years; this provides a long term buying opportunity. My favorite name in the space is Teva Pharmaceuticals (TEVA) which I own and have written about many times in Seeking Alpha. My second favorite stock in the space is Endo Health Solutions (ENDP) which has rock bottom valuations and some recent insider buying.
"Endo Health Solutions provides specialty healthcare solutions in the United States and internationally. The company's Branded Pharmaceuticals segment offers Lidoderm, Opana ER, Opana, Percocet, Voltaren Gel, Frova, Supprelin LA, Vantas, Valstar, and Fortesta Gel products in pain management, urology, endocrinology, and oncology areas; and hydrogel polymer implant, a drug delivery device." (Business description from Yahoo Finance)
7 Reasons there is great value in ENDP at $30 a share:
- The stock is selling at the very bottom of its five year valuation range based on P/E, P/B, P/CF and P/S.
- The CEO just bought $250K in news shares in the open market.
- The company increased its operating cash flow by approximately 250% from FY2009 to FY2011 and the stock sells for just 6 times current OCF.
- The stocks sells for just 5.3 times forward earnings, a discount to its five year average (9.2). In the previous five years, the stock grew EPS at an average annual clip of over 22%.
- The market seems to be giving the stock not enough credit for its growth prospects. Endo has a five year projected PEG of just .79 and analysts expect over 15% sales growth in FY2012.
- The 19 analysts that cover the stock have a median price target of $44 a share on ENDP, better than a 40% gain from current prices.
- The stock has bounced from just under these levels previously (See Chart)