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Endo Pharma's Reduced Guidance And Repercussions

|Includes: BHC, Endo International plc (ENDP)

Today's numbers from Endo are causing a huge sell off in the pharma world.

Let's look at Endo's results for a minute. New guidance indicates EPS of $4.5 to $4.8 per share in 2016. With the stock at $16.3, clearly it's trading at a rock bottom forward P/E of 3.6X.

What's the market thinking? Debt figures here prominently. Debt stands at $8.2b. So EV is 11.65b. New EBITDA guidance is $1.6b on the low end. So EV / EBITDA comes in at 7.3X. Debt to EBITDA goes to 5.2X. Very high.

2016 FCF is estimated at $225MM on the low end. The problem here is that it doesn't leave much for debt reduction. $8.2b in debt, but only $225MM to reduce it in 2016. Not good.

But the FCF is impacted by a bunch of one off items. Mesh payments and settlement charges.

Question is: is it worth buying at current prices? The debt is a problem here. There is price deflation across specialty and generic pharma and it seems like those with very high leverage ratios are in trouble.

This is a short at the current price. Bankruptcy is a high probability event IMO.

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