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FPA Capital Invests in Akorn

- By Kyle Ferguson

FPA Capital Fund (Trades, Portfolio) seeks long-term growth through the careful selection of common stocks and select fixed-income securities. During the first quarter it purchased 380,120 shares in Akorn Inc. (AKRX)


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Headquartered in Lake Forest, Illinois, Akorn, together with its subsidiaries, is a specialty generic pharmaceutical company that develops, manufactures and markets generic and branded prescription pharmaceuticals as well as private-label over-the-counter consumer health products and animal health pharmaceuticals.

It operates through the Prescription Pharmaceuticals and Consumer Health segments. The Prescription Pharmaceuticals segment engages in the sales of generic and branded prescription pharmaceuticals including ophthalmics, injectables, oral liquids, optics, topicals, inhalants and nasal sprays.

Akorn has a market cap of $4.06 billion, a price-earnings (P/E) ratio of 22.04, an enterprise value of $3.89 billion and a price-book (P/B) ratio of 4.95.

According to GuruFocus, the company has a 5 of 10 financial strength rating. It has a cash-debt ratio of 0.25, an equity-asset ratio of 0.42 and an Altman Z-Score of 3.19, which indicates it is financially strong. The Beneish M-Score of -1.64 suggests the company is a manipulator of its financial statements. The Piotroski F-Score of 6 indicates the company's financial situation is typical for a stable company.

The company has a 9 of 10 profitability and growth rating. It has an operating margin of 29.33%, a net margin of 16.50%, return on assets (ROA) of 9.45% and return on equity (ROE) of 24.93%, ranking it higher than 88% of the 768 companies in the Global Drug Manufacturers Industry.

Akorn's market price rallied 18% on Friday following a Bloomberg report that German health-care Fresenius SE & Co. is considering purchasing the company.

In separate statements, the companies said there was certainty in the deal.

Since the FPA Capital Fund purchased its stake in Akorn during the first quarter the company's market price has skyrocketed gaining an estimated 51%.

Below is a Peter Lynch chart that shows Akorn is trading above its intrinsic value.

Disclosure: Author does not own any shares of this company.

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This article first appeared on GuruFocus.