Barr Labs Smokes Estimates (BRL, TEVA)

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 |  Includes: BRL, TEVA
by: Daniel Andres Jacome

First Albany downgraded Barr Labs (BRL) on Wednesday after the generic drug manufacturer smashed earnings.

Excluding one-time items, Barr's second-quarter profit was 85 cents, well above the average estimate of 78 cents analysts supplied to Thomson First Call. The consensus sales forecast was $316 million. Its star product, Seasonale, an oral contraceptive, remains a key revenue driver.

Seasonale reduces the number of periods in a woman's menstrual cycle to four from 13. Sales will exceed the $100 million target for the fiscal year ending June 30. Seasonale produced $29 million in revenue during the second quarter, up 40%. Barr is currently pushing the FDA to let it release Seasonique, another extended-cycle oral contraceptive.

Barr has a niche that they dominate, and we think profit-taking is the only reason one might even think of selling this stock. Barr sells 22 generic oral contraceptives.

Although Barr is fairly valued on a price/sales and price/cash flow basis, its price/earnings multiple still trails that of Israeli drug giant Teva by a mile (note, however, that Teva pulls in almost 5x as much revenue as Barr).

Barr's a keeper, for now at least.

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