2013-01-04 15:14:44 -

Endo Health Solutions (NASDAQ:ENDP) re-established financial guidance Thursday
night, re-affirming 2012's prior outlook and, as expected, guiding expectations
lower for revenue and EPS in 2013. This news will be viewed as a key clearing
event for the stock as few believed the company's prior guidance, and analysts
and investors have been waiting for the company to set expectations in a
realistic, if not conservative manner. With the company reducing its prior 2013
EPS outlook from a range of $5.20 to $5.40 (Street was at $5.08) to a new range
of $4.40 to $4.70, the market is likely to finally breathe a sigh of relief that
earnings expectations are now beatable, not set up to disappoint. That shift
from "estimates are too high" to "estimates are too low" should open the
flood
gates   for investors waiting on the sidelines to jump into the story. In addition
to lowered expectations positioning the next several quarters for earnings
upside, there are several potential catalysts that should drive ENDP shares
higher to a more respectable valuation. We list those catalysts below, with the
most important one being the upcoming appointment of a new, capable specialty
pharmaceutical CEO in the next couple of months. Nevertheless, despite the
lowered guidance, ENDP trades at just 5.7x the mid-point of the new 2013 EPS
guidance range, which compares very favorably to the Specialty Pharmaceutical
P/E multiple average of approximately 8x. Assuming ENDP can trade at a 20%
discount to the average P/E multiple of the group, the shares would be valued at
$29.12 (using the mid-point of 2013 guidance). As a result, we see strong upside
to ENDP shares given its discounted price, potential upside to earnings
estimates, and catalysts that can move the stock higher.

Conservatism built into the outlook, cushion to beat. Most importantly, the new
guidance takes significant pressure off of expectations for Opana ER to grow,
with the company now factoring in a 20% reduction in sales, year over year, for
the pain drug. Opana ER disappointments in the last several quarters have been
the most visible reason that ENDP shares have been unable to perform, and now
the new guidance positions this key product for potential positive surprise.
Investors were a bit taken aback to see the company reduce revenue growth
guidance for its generic drug business (Qualitest), however, the take away from
private conversations with management is that this business is still very
strong, with demand outweighing the company's ability to supply product. Even
though it will continue to expand manufacturing capacity, the company brought
down guidance from "double-digit" revenue growth to "low double-digit"
revenue
growth likely to make numbers that much more conservative. Lastly, the company
also mentioned that its medical device business (AMS) will now grow in the low-
single-digit range (from the mid-single-digits), also for conservative reasons.
With these changes, the revenue line for 2013 is now expected to be in the $2.8B
to $2.95B range (vs. the prior Street estimate of $3.06B), and while this is
lower than many were modeling, the revision was also expected, and now provides
the company ample cushion across all of its business units to perform. Continue
reading.

See the full article at PropThink.com.

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