John T. Boris
Citigroup Global Markets
The U.S. major pharmaceutical group is trading at 8.3x (times) 2011 estimated earnings per share (EPS), representing a 32 percent discount to the S&P 500 on consensus EPS and a 38 percent discount on Citi Investment Research & Analysis earnings.
This compares to the European Union drug multiple (for example, Novo Norisk, NVO) of 9.0x and the U.S. Large Cap Biotech multiple of 12.8x. The mean 10- and 20-year premiums are 8 percent and 9 percent, respectively.
We reiterate our Buy rating (on Watson Pharmaceuticals Inc., WPI) and $48 price target, which assumes WPI trades at approximately 12.5x our 2011 estimated cash EPS (earnings per share) of $3.84 (versus $3.81 for the Street), below WPI’s 10-year historical median (22x) & average (23x) forward P/E multiple.
Zacks Investment Research
Watson Pharmaceuticals posted first-quarter earnings of $0.81 per share, well above Zacks’ consensus estimate of $0.74 and the year-ago earnings of $0.69. Revenues increased 28% to $856.5 million, mainly due to the strong performance of the generics business.
We believe that the company’s cost-saving initiative and new product launches, both brand and generic, will help drive growth.
We also view the company’s acquisition of Arrow as a smart strategic move. This acquisition should help boost Watson’s product portfolio and expand its footprint in ex-U.S territories. However, integration risks remain and competition in both the branded and generic markets remain fierce. We remain neutral on the stock.
Jefferies International Ltd.
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