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Duncan Williams Sees Large Takeover Potential in Obagi Medical Products (OMPI), Priced at 40%-60% Upside

July 6, 2011 10:48 AM EDT
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Price: $23.98 --0%

Rating Summary:
    0 Buy, 4 Hold, 0 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 20 | Down: 14 | New: 22
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Duncan Williams is maintaining its Hold rating and $10 hypothetical price target on shares of Obagi Medical Products (NASDAQ: OMPI) as the company is still working through the Texas hydroquinone recall.

Management highlighted that roughly 10 percent of Texas accounts have abandoned the entire Obagi product line. The firm anticipates some contraction in the internet channel which represents around 10 percent of the company's total revenue.

Currently Obagi is a highly vulnerable target for a takeover since 50 percent of the stock is held by 6 shareholders, and 75 percent is held by 12 shareholders. Management noted that current takeover companies include large pharmaceutical companies, aesthetics companies, international players, and energy firms.

The firm forecasts that Obagi may be acquired for $270-$300 million (~40-60% upside), depending on the strategic value that Obagi offers the buyer.

An analyst at Duncan Williams comments, "We do think the brand is well recognized and the business could deliver solid cash flow growth into perpetuity if there were a way to replace hydroquinone with another effective, yet cosmetic ingredient that carries less FDA risk. We therefore think that a buyer for this company should emerge eventually, especially if management is unable to address the current challenges facing the company and there is additional pressure on the stock."

For more ratings news on Obagi Medical Products click here and for the rating history of Obagi Medical Products click here.

Shares of Obagi Medical Products closed at $9.82 yesterday.


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