Chris Lau
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Chris Lau in Value Stocks,

If Valeant Set to Rebound, Endo International Poised to Soar

Endo International (ENDP) jumped 33.8 percent last week after the company’s second-quarter earnings proved the business is not only strong, there is more upside ahead. The company beat expectations in a big way.

The Par Pharmaceutical acquisition added to Endo’s 25% Y/Y revenue increase.

In the first quarter, the stock slumped because the company anticipated weakness in the generic drug market. This landscape is changing. Teva (TEVA) acquired Allergan’s (AGN) generic drug unit. Endo is adjusting to a drug market where price hiking is frowned upon. It will make up the loss in profit growth from higher prices by boosting volume.

In the conference call, Endo said:

We continue to drive growth in our generic sterile injectables products and our Generics Base business is performing right in line with the expectations we communicated to you in May of this year. We secured a patent for our largest product Vasostrict and continued to launch differentiated generics products and filed new ANDAs with the FDA.

Differentiating its generic drug brands from the competitors will help Endo sustain profit margins. Similarly, Valeant (VRX) is in the midst of restructuring its generic drug pricing, sales, and competitive positioning. It will shed non-core assets and find ways to sell the generic brands profitably.

Valeant’s stock is cheap. It reflects the uncertainties in the generic drug unit. Conversely, Endo’s 4.85x forward earnings multiple is still too low. Expect more gains ahead for Endo.