Endo Highlights Growth Strategy

Zacks Equity Research

Endo Health Solutions (ENDP) recently outlined its growth strategy at its investor day. The company expects growth to be driven by its Qualitest (formerly generics), division. The segment is expected to record double digit sales growth through 2015. The segment should benefit with approximately $93 billion worth of branded drugs expected to face generic competition by 2016.

Endo Health expects the American Medical Systems (formerly devices) segment to continue growing. Sales from the segment are expected to display mid-single digit growth through 2015. Moreover, key drugs such as Opana ER and Voltaren Gel are also expected to perform well in the long term. Endo will continue to control expenses prudently, going forward.

Endo Health further stated that it expects 2013 adjusted earnings in the range of $5.20-$5.40 per share. Revenues for 2013 are expected in the range of $3.0-$3.2 billion. The adjusted earnings guidance was below the Zacks Consensus Estimate of $5.52, which has since been trimmed to $5.34 per share. The below-par guidance for 2013 takes into account Endo Health’s key pain drug, Lidoderm, facing generic competition from September 15, 2013.

We remind investors that in August 2012, the US Food and Drug Administration (:FDA) cleared Watson Pharmaceuticals’ (WPI) generic version of Lidoderm. However, Watson Pharma’s agreement with Endo Health prohibits the former from selling the drug prior to September 15, 2013. Endo Health further stated that it expects to retain 30% of the drug sales following the entry of Lidoderm’s first generic competitor.  

Endo Health reiterated its guidance for 2012. The company continues to expect to earn in the range of $5.00-$5.20 per share. The Zacks Consensus Estimate of $5.03 per share is towards the lower end of the guidance. Revenues are still expected in the range of $3.05-$3.175 billion.

Endo Health further stated on its investor day that it expects adjusted earnings of $1.25 per share in the third quarter of 2012, a couple of cents shy of the Zacks Consensus Estimate of $1.27. The third quarter of 2012 saw Endo Health repurchasing $100 million of its common stock.

In August 2012, the Board of Directors at Endo Health cleared a share repurchase program under which the company intends to buy back up to $450 million of its common stock by March 2015. We believe that the buyback program highlights Endo Health’s commitment to create value for shareholders.

Our Recommendation

We currently have a Neutral recommendation on Endo Health. The stock carries a Zacks #3 Rank (Hold rating) in the short run.

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