This Pharma is a Keeper

With a great deal of focus on the current flu outbreak we thought it would be timely to introduce an old-line generic drug company that could be an M&A target this year.

Lannett Company, Inc. (NYSE – LCI - $5.60) is a small pharmaceutical company that traces its roots to 1942. The Company’s current oral and topical drug portfolio includes generics related to a wide variety of ailments such as glaucoma, Parkinson’s disease, migraines, antibiotic, anesthetic, endometriosis, obesity, congestive heart failure, pain management, etc.

Investors should expect that progress in the introduction of new offerings in the fast-growing pain management segment and enhancing its R&D and production capabilities in this treatment category should be a boost to the Company’s already strong growth over the next year or so.

The stock has been on fire over the past 2 months, climbing from the $4.00 range to the present levels.  Current EPS estimates for the June 2013 year are $0.18 per share and EPS is expected to jump to $0.31 in its next fiscal year. It is possible that these estimates could be light given that LCI already reported 1Q13 fiscal EPS of $0.10 on a 25% rise in revenue from 1Q12.

The chart looks great and the stock is a hair under its year high. The only overhang we see is the recently revised shelf registration filed a month ago which would enable the Company and shareholders to sell as much as $64M in stock and debt securities. While management stated it has no plans to utilize this shelf right now, it clearly will down the road, in our view, which could increase the float and/or cause modest dilution.

Still, with an annual revenue-run rate in excess of $130M, nice profitability, a huge product portfolio, and an aged company and leadership, we would not be surprised to see LCI be snatched up this year.

If management continues to hit on all cylinders, LCI could be a $7.00 in a year’s time.

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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