Impax Labs: Zacks’ Bull of the Day Play

Impax Laboratories (IPXLSnapshot Report) is a Zacks Rank #1 (Strong Buy), and as such, we know that earnings estimates are moving higher. Let’s take a deeper look at this company as it is the Bull of the Day.Company Description

Impax Laboratories is a specialty pharmaceutical company that develops, manufactures, and markets bioequivalent pharmaceutical products as well as branded products. More easily stated, they make both generics and their own drugs. The company was founded in 1993 and is headquartered in Hayward, California.

The generics side of the business is the stable side that brings in good revenue. At the same time, the company has the Impax division that is making its own drugs. The drug that looks to have a lot of promise that they have made is Rytary, a drug for the treatment of Parkinson’s disease. Rytary was approved by the FDA on Jan 7. Rytary will launch in April of this year.

They have also created Zomig, a nasal spray, so they are not a one trick pony. The other idea to know about this company is that they are acquiring Tower Holding and its subsidiaries for $700M back in October of last year. To me, this is an aggressive move, but I like it as the generic side of the business is helping them get deeper into the branded business.

Earnings History

So with a biotech you can expect a few ups and downs with the earnings history. This company as a blend of bio tech and generic drug maker makes earnings a little more important than most bio techs. That said there are still ebbs and flows. Over the last six quarters the company has missed the Zacks Consensus Estimate 2 times and beat 4 times. Both the beats and the misses are huge, so the analysts are basically throwing darts at the board here. That probably means the rank on this stock is likely to move like a pogo stick (up and down).

Estimates

The 2014 Zacks Consensus Estimate was a picture that we love to see, some nice and steady growth throughout most of the year then a big bump up in August and only a few pennies of movement after that. That is a long winded way of saying that the estimates for 2014 more than doubled from January 2014 to January 2015. The move from $0.63 to $1.29 is just what I want to see out of an aggressive growth stock.

The 2015 number is another story entirely. The number has moved every which way but diagonally. Take the June through August swing as an example. The estimate moved from $0.67 to $0.74 and then to $0.58 over those three months. That is a big up and down swing. At the end of the day, the number now stands at $1.36 following the $0.90 boost from the proposed acquisition of Tower.

 

Valuation

IPXL has a slight premium valuation, but it could be in flux here as their new drug comes out and they await the acquisition to close. The trailing PE of 32x is well above the 23x industry average, while the forward PE of 27x shows a smaller premium when compared to the 20x industry average. I should note that this stock is going to straddle two industries, so that industry average should not carry the same weight as it normally does. The price to book multiple of 3x is below the 4x industry average while the price to sales clocks in at 4x, right were the industry average sits.

Competitor

There is another play out there for the Parkinson’s disease angle. Neuroderm (NDMR) is also in the mix with their drug. That stock, however, is a Zacks Rank #3 (Hold) and at just $175M in market cap might be too small for most investors. A prominent bio tech blogger has noted that companies below a market capitalization of $3B tend to have a tougher road. IPXL is just under that threshold at $2.7B, but more than 10x the size of NDRM.

Revenue Chart

The Zacks Research Wizard software allows me to plot all sorts of metric and estimates vs the stock price. I wanted to show this chart of the forward consensus revenue estimate for IPXL plotted against the stock price over the last three years. Seems things are looking up for IPXL!

Follow Brian Bolan on twitter at @BBolan1

Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.

 
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