Akorn
Akorn is a specialty generic pharmaceutical company. We like Akorn for multiple reasons. First, despite being in the generic segment, it focuses on products that are more difficult to manufacture compared to other drugs. Therefore, Akorn manufacturing capabilities insulates the company from low price competition.
Second, the company is rapidly growing and is executing its strategy very efficiently.
Valuation
From 2010 to 2015, Akorn traded at a P/E multiple ranging from 27.1 in 2011 to 95.3 in 2014, for an average P/E of 46 (source: 4-Traders). It now trades at 13.4X 2016 earnings and 12.4X 2017 earnings. We run three valuation models:
- Our valuation model, assuming a growth of 6% and a WACC of 10%, provides a fair value of $39 per share (almost double the current levels).
- However, an “abnormal earnings growth” model offers a valuation just below $20.
Considering the current downtrend, we suggest starting a 50% position at current price and then increase the position if the stock goes down to around $16 to $18.
Conclusion
We believe that the pharmaceutical sector has received too much negative attention. Despite the risks, a few companies offer good entry opportunities. Today we have analysed Akorn. The company is interesting and valued conservatively.
A full version of this article can be found here.
As always, thank you for reading. If you wish to follow our future articles, just click the "Follow" button next to our name at the top. We would also be interested to know what you think about the Akorn and other generics. If you would like us to cover a company, please let us know in the comments. Finally, if you want to know more about INTEGER INVESTMENTS visit our website. Thank you for reading!
Disclaimer: Integer investment owns shares in AKRX.
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