AKRX 020712
Akorn, Inc. (AKRX)
Another essential cog in the new healthcare machine will be the availability of low-cost generic medicine for common conditions and perhaps even more importantly for specialized niche care.
It is extremely important to keep the production of critical drugs flowing into the hands of consumers in need. Companies like Akorn that have a diverse business model, years of experience and a strong line of drugs and pharmaceutical products that are in demand will benefit from increases in coverage and health awareness.
Company Description & Developments
Akorn, Inc. is a niche generic pharmaceutical company that develops, manufactures and markets pharmaceutical products in the areas of ophthalmology, antidotes, anti-infectives in addition to controlled substances for pain management and anesthesia around the world since 1971.
Akorn’s customer base is well diversified from physicians to clinics and long term care facilities, retail pharmacies and even other pharmaceutical companies. To keep focused on their different lines, the company is divided into three segments, Specialty Therapeutics and Injectable Pharmaceuticals, Ophthalmologic Pharmaceuticals and Contract Manufacturing.
On January 17th, AKRS announced that their revenues would exceed prior estimates for 2011 and anticipated full-year results above the upper end of its prior outlook for both revenues and adjusted EBITDA of approximately $41 million to $43 million, with revenue projections between $130 million and $132 million on gross margins of approximately 57%.
This came on the heels of news that Akorn’s wholly-owned subsidiary, Oak Pharmaceuticals, acquired three off-patent, branded, hospital-based injectables from the US subsidiary of H. Lundbeck A/S. That acquisition will also immediately contribute directly to their bottom line.
The company also intends to expand its sales force and re-organize them into two distinct focus areas, Ophthalmics and Hospital Injectables. Expansion plans include increased investments in R&D to accelerate product development.
All in all the news flow and earnings momentum has been very positive for the stock. Subsequently, shares of the drug maker are sharing in that impetus.
Financial Profile
Akorn is a small-cap (1.14 billion) company that is trading at about 54 times trailing earnings (P/E). This makes it a bit expensive when you compare it to the broad market average. Looking forward, Zacks Consensus Estimates are calling for that number to drop closer to 30 with no change in price over the next year.
Akorn became a Zacks Rank 1 strong buy on January 20th.
The pharmaceutical company reported a quarterly sales increase of 14% at their last earnings report. Annual sales were up 70% compared to Q32010 with total sales of roughly 86.4 million in FY2010. AKRX earnings leapt from a 28 cent loss to a 22 cent profit from FY2009 to FY2010. Akorn is expected to earn $0.29 in FY2011 according to the Zacks Consensus Estimate.
Earnings Estimates
Since AKRS is a small cap, only 2 analysts cover the stock, but both raised estimates higher for the coming quarters as well as FY2011 and FY2012 in the past month. Akorn will report Q42011 results on February 28th. Expectations are for Akorn to generate $0.08 in income this quarter. Of the 2 analysts who cover AKRX, the consensus is for the company to grow earnings by 32% in the current year (FY2011) and roughly 36% in FY2012.
In terms of the magnitude of analyst estimate trends, we are seeing all of the consensus estimates higher than they were 90 days ago for the current and next quarters as well as FY2011and FY2012.
Akorn beat estimates last quarter by 60% and has averaged to beat estimates by over 64% during the past year.
Market Performance & Technicals
Akorn’s chart are almost perfectly what we call “bottom left to top right” indicating steady upward price movement over the past year. The stock has been making new 52 week highs almost weekly since May of 2010 and trades decent volume for a small cap.
Akorn has remained above its 50 day moving average for most of the year and has not dipped below its 200 day at all in that time. The averages currently stand at $11.00 (50 day) and $8.52 (200 day).
The trend remains bullish and the momentum continues for AKRX. The broad market seems to be the only thing that could disrupt Akorn’s assent. A disappointing earnings report could also have the same effect. AKRX has exceeded the S&P 500’s performance by over 122% in the past year and over 12% in the past 3 months alone. This is no doubt a true momentum company.
Jared A Levy is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Whisper Trader Service.
