Jazz Pharmaceuticals plc (JAZZ) has beaten the Zacks Consensus Estimate in seven of the last eight quarters with an average earnings surprise of 6.26%. Moreover, the company generated year-over-year earnings growth of 79.2% in the first quarter of 2012. With a continued increase in earnings estimates and a long-term growth projection of about 21.3%, this specialty biopharmaceutical stock became a Zacks #1 (Strong Buy) stock on May 31, 2012.
Positive Surprise in First Quarter
On May 8, Jazz Pharma reported first quarter 2012 earnings of 86 cents per share, soaring past the year-ago earnings of 48 cents and topping the Zacks Consensus Estimate by a penny.
Revenues more than doubled to $108.4 million. This represents the first combined financial results of the company following the completion of its Azur Pharma merger on January 18, 2012.
First quarter results were driven by the strong performance of narcolepsy product Xyrem, as well as contribution from the expanded product portfolio resulting from the Azur Pharma merger.
Xyrem, the lead product at Jazz Pharma, should continue performing well, driven by volume growth and price increases. A portfolio of products with exclusivity, differentiation and high gross margins gives the company strength to grow steadily. The acquisition of EUSA Pharma in June 2012 adds another high opportunity product to its portfolio - oncology product Erwinaze.
Guidance Up on First Quarter Results
Jazz Pharma increased both its 2012 revenue and earnings guidance significantly following the strong first quarter results. The company raised its sales guidance by $20 - $35 million to $500 - $510 million, based on the strong performance of Xyrem. Meanwhile, its earnings guidance was boosted by 25 cents to a new range of $4.25 - $4.40 per share.
The company will be updating its guidance again when reporting its second quarter results to include the impact of the EUSA Pharma acquisition. The EUSA Pharma acquisition is expected to add $90 - $100 million to 2012 revenues and boost earnings by about 25-30 cents per share.
Earnings Estimates on the Rise
Following the release of first quarter results, earnings estimates moved up significantly over the last 60 days. The Zacks Consensus Estimate for 2012 is up 14.8% to $4.35 per share, while the Zacks Consensus Estimate for 2013 has increased 18.2% to $5.32 per share. The implied earnings growth rate of more than 38% in 2012 should be attractive for aggressive growth investors.
Jazz Pharma's valuation looks reasonable on a P/E and ROE basis. Based on 2012 earnings estimates, the company is trading at a P/E of 9.91x, a 12.1% discount to the peer group average of 11.11x. Meanwhile, Jazz Pharma's ROE of 55.9% is higher than the peer group average of 33.8%.
Given the long-term growth projection of 21.3%, the PEG ratio comes in at 0.46, a 54% discount to the benchmark of 1 for a fairly priced stock.
Although Jazz Pharma has witnessed some fluctuation in share price over the last few quarters, the company had an impressive run over the past three years. The price has shot up from $1.34 in January 2009 to $43.06 in June 2012.
The price and consensus chart shows that estimates have consistently been on the rise with the stock price following the movement of estimate revisions. With 2012 and 2013 estimates increasing, the stock price should also keep increasing, in keeping with the trend seen so far.
Jazz Pharma, which has a market cap of $2.44 billion, is a specialty biopharmaceutical company that develops and commercializes products that meet significant unmet needs in specific disease areas. Marketed products include Xyrem (narcolepsy), FazaClo/FazaClo HD (schizophrenia), Luvox CR (obsessive compulsive disorder), Prialt (pain), and women's health products like Elestrin (treatment of moderate to severe vasomotor symptoms associated with menopause). The company, previously known as Jazz Pharmaceuticals, Inc., was renamed Jazz Pharmaceuticals plc following the January 2012 merger with Azur Pharma. Headquartered in Dublin, Ireland, Jazz Pharma has operations in Palo Alto, California and Philadelphia.
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