Time to Punt on this Big Winner?

Written by GSCR Staff   
Wednesday, 27 August 2014 09:01

In keeping with the football theme from the Guide this week as we gear up for the start of college football this week and the NFL next week, we thought we would look at one of our biggest winners.  As you know, we think the market is in for a correction and now may be the time to examine some stocks for profit taking.

Back in mid-January 2013 we featured Lannett Company, Inc. (NYSE – LCI - $39.35) in the Market Monitor at $5.61.  For those who do the math, that is over a 600% gain in just under 20 months!!  In actuality, the stock crossed the 51% mark right before the 4th of July earlier this summer dropping to $33.61 a few weeks later, but now back on a steady climb.  The question is what to do now?

For a refresher, Lannett Company currently has and develops an oral and topical drug portfolio that includes generics related to a wide variety of ailments such as glaucoma, Parkinson’s disease, migraines, antibiotic, anesthetic, endometriosis, obesity, congestive heart failure, and pain management among other applications.

Back in April we set a price for $40 to $45 for the stock.  In the micro technical level LCI is still very bullish in the short term regarding DMA, but bearish neutral to long term.  There is a resistance at the $40.50 level.  Additionally, the Company has begun to monetize some if its portfolio.  The forward P/E of 16 is still half the trailing P/E at 36 on analysts’ consensus of an 80% growth in top line revenue in 2014 over 2013.  The PEG ratio of 1.33 is also attractive.

From a numbers perspective LCI still looks fairly good.  However, there have been a few hurdles thrown at the Company over recent months.  First, the law firm of Lifshitz & Miller filed a class action lawsuit against Lannett with allegations of potential fixing, maintaining or controlling prices of digoxin or allocating and dividing customers or territories relating to the sale of digoxin in violation of Connecticut antitrust law.  Additionally, there have been some safety concerns with digoxin the Company’s generic heart drug.

We think it is time to take some money and run here.  If you cannot stomach it, sell now, but we think LCI can reach $41 again in short order before some longer term negative momentum begins.

Have a great day!

 

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

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