Obagi Medical Should Jump on Bullish Calls

Apr.28.08 | About: Obagi Medical (OMPI)

Obagi Medical (NASDAQ:OMPI) is getting mega-comments from two firms this morning ahead of their Q1 report scheduled for May 5:

- Baird & Co reaffirms their Outperform rating and recommends purchase ahead of the Q1 report. They conducted a survey in 12 US cities to assess demand for physician-dispensed products. Firm's survey results indicate that demand for these products is roughly comparable to six months ago. Firm believes the market has priced in too much pessimism; buy ahead of quarter.

Baird's 2008 sales estimate of $122.0 million calls for revenue growth of 18.9% over 2007 levels, but they note that OMPI's sales in Q4 amounted to a $109 million run rate.

In addition, OMPI is continuing to launch both its CLENZIderm and ELASTIderm product lines, and most recently introduced the ELASTIderm Decolletage line extension.

The stock has halved in value since OMPI issued its Q4 report, but their survey data indicates that this pullback is unwarranted.

Reiterates Outperform and $30 target.

- Oppenheimer notes expect Obagi's 1Q08 earnings call on 05/05 to be a key catalyst for the shares. They expect management to provide qualitative and quantitative information on the macro environment and to clarify the growth outlook. With OMPI shares trading at 7.0X tempered '09 EPS estimate of $1.04, concerns on guidance risk (due to the reduction in discretionary aesthetic spending) seem overdone.

Firm would buy on the weakness in the stock and expect strong secular growth, new product launches, and geographical expansion to support growth returning to 20%s in '09.

Firm believes that OMPI valuation has likely hit a trough, with shares declining more than 50% since the 4Q07 earnings call. With Obagi enterprise value trading at merely 1.3X '09 sales estimate of $140.9 million, the current valuation seems to reflect the Street's the most bearish view on the story, which essentially assumes no growth at all.

Reits Outperform & $15 target.

Notablecalls: Have I ever called a preview 'Actionable'? Don't think I have. First time for everything. OMPI will report a week from now and I suspect the stock will at least 10%-20% higher by then.

Most of the asthetics space has been crushed but given that OMPI's products cost around $100 (and less) it's somewhat more immune to the weakening consumer than for example Mentor (NYSE:MNT) that makes breast implants ($10K a pop).

I think there will be a wave of acquisitions in the space (JNJ for MNT makes sense here, surely - been rumored for quiet a while) which will help the valuations.

Anyway, OMPI is a buy here. Actionable too.