Lannett Company, Inc. LCI 34.69% shares rocketed higher by 38% on Wednesday after the company reported a solid fiscal fourth quarter and impressive fiscal 2020 guidance.
One Wall Street analyst said the quarter was solid, but investors should remain cautious on Lannett given questions surrounding its long-term growth prospects and margin profile.
The Analyst
BMO Capital Markets analyst Gary Nachman reiterated his Market Perform rating and $10 price target for Lannett.
The Thesis
Nachman said Lannett management continues to execute well, announcing a new compound annual revenue growth target of above 15% through fiscal 2022. Lannett launched 25 new products in fiscal 2019, accounting for about $75 million in incremental revenue.
The company has also been focused on accelerating distributor partnerships, including a new deal with Sinotherapeutics for the launch of first gPosaconazole, which Nachman said will be a significant revenue contributor in fiscal 2020. Lannett also recently announced a deal with Cediprof related to a different Levo product that Nachman said will begin contributing to Lannett’s financials starting in 2022.
Nachman said Lannett is also making progress in managing its debt, including paying down $38 million in the fourth quarter.
“However, generics has been a challenging sector in general. And with the loss of the [Jerome Stevens Pharmaceuticals] agreement and a lack of visibility on the pipeline LCI’s growth is more challenged,” Nachman said.
Despite the cautious tone, BMO raised its fiscal 2020 EPS and revenue estimates from $1.11 and $518 million to $1.28 and $539 million, respectively.
The stock traded around $8.28 per share at time of publication.
Benzinga’s Take
Wednesday’s big move in Lannett shares certainly has investors excited in the near term, but the stock is still trading off its 52-week highs ($10.45) and remains down more than 75% overall in the past three years. Given the challenges Nachman described, some traders may take the opportunity to cash out of the stock following Wednesday’s big gains.
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