Friday, April 09, 2010

Forest Labs & Wal-Mart

Forest Laboratories

FDA's advisory panel voted 10-5 against approving the drug, Daxas, and the share skidded by over 13%, closing at $28.25 for the week. FDA generally follows the panel's advice but is not bound to the panel's decision. The fate of Daxas, a once-a-week pill for chronic obstructive pulmonary disease, is key to Forest as it rebuilds its portfolio ahead of the Apr 2012 patent expiration of its top-selling drug, Lexapro, which contributes almost 60% to its revenue. Daxas is developed by Nycomed, a private Swiss company, but Forest holds the right to sell in the USA. Analysts' estimate for Daxas' peak sales of anything from $500m to $2.1b. Lexapro's sales is $2.3b.

Forest second top-seller is Namenda, which generates sales of $1.1b, with an annual growth rate of 15% recently. The drug patent is poised to expire in Apr 2015. In the last 2 years, 2 new drugs were launched - 1) Bystolic, launched in Jan 2008, recorded sales of $125.9m for the first 9 months of 2010 financial year, 2) Savella, launched Apr 2009, recorded sales of $15.4m in the recent 3rd quarter ended 31 Dec 2009.

Aside from the patent expiration challenge the company faces, the numbers look pretty decent:

1) Market cap - 305m shares x $28.25 = $8.6b
2) Cash & equivalents - $3.874b
3) Net profit - $0.768b
4) Free cash flow - $1b

Excluding cash & equivalent, the company is valued at 4.7 times FCF or 6 times earnings - less than half of Pfizer valuation, which its top-seller, Lipitor, with $12b in sales is expiring.

Wal-Mart Stores

Based on forward PE, WMT is selling at a slight discount to other fellow retailers. WMT is estimated to earn $3.98 a share, and at $55, PE is 13.8. Target, TJX, Family Dollar, Costco Warehouse, BJ Warehouse, are selling at PE of about 15, with Costco the highest at over 20.

Thomson Reuters reported same-store sales - an important metric that compares sales for stores that are open at least a year - for the month of March 2010 hit a record high of 9.1% for retailers. TJX posted 12% growth, BJ Warehouse up 10.6%, Target up 10.3%, Costco up 10%, and Family Dollar up 11%. Wal-Mart does not report monthly same-store sales.

Walmart share price had lagged most of her fellow retailers the past year, though it is up 10%.