Goldman Sachs Adds Watson Pharmaceuticals (WPI) to Conviction Buy List, Cheap Vs. Peers

June 19, 2012 7:12 AM EDT Send to a Friend
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Price: $85.73 --0%

Rating Summary:
    14 Buy, 5 Hold, 0 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 24 | Down: 14 | New: 40
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Goldman Sachs added Watson Pharmaceuticals (NYSE: WPI) to Conviction Buy List with a price target of $87, suggesting 25.7% upside.

The firm said WPI "is the most visible and highest Generics growth story," however shares traded just in-line with peers on EU concerns although it has lower Western EU exposure.

Goldman notes shares are down 12 percent since the end of April, versus a 10 percent slide in peers.

"At $69 the market is already assuming the bear case for WPI: no Lidoderm exclusivity, 2H2012 Concerta competition, EU pressures."

The firm sees 2011-2015 EPS CAGR at 22%, more than double 9% for peers Mylan, Inc. (NYSE: MYL) and Teva Pharmaceutical (NYSE: TEVA). This premium growth trajectory is not reflected in the stock, the firm notes. Also, shares traded at 8.5x PF 2013E EPS vs. 7.0x for large cap peers, "implying that the market is pricing in a 2011-2015 EPS CAGR for WPI closer to 10% than 22%." Another growth story in the group, Perrigo Co. (Nasdaq: PRGO), trades at a premium 21.0x P/E on 2013E but only offers a 2011-15 EPS CAGR of 12%, the firm notes.

For an analyst ratings summary and ratings history on Watson Pharmaceuticals click here. For more ratings news on Watson Pharmaceuticals click here.

Shares of Watson Pharmaceuticals closed at $69.22 yesterday.


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