Today Brian Hicks recommends a fast growing (although also dividend-paying) pharmaceutical, and Michael Cintolo and Stephen Quickel issue sell alerts on a couple recommendations from earlier this year.
Questcor Therapeutics (QCOR)
from The Wealth Advisory
Questcor Pharmaceuticals is a one-trick pony — that is, it has one product: HP Acthar Gel. ... HP Acthar Gel is approved by the FDA to treat 19 different conditions, including infantile spasms, multiple sclerosis, nephrotic syndrome and rheumatology indications, such as psoriatic arthritis and rheumatoid arthritis.
Questcor is currently expanding its studies to grow its market share in lupus and Lou Gehrig’s disease. And Acthar Gel is likely to be approved for other conditions as well. The key here is the underlying symptoms that all these conditions have in common: They are all autoimmune and inflammatory disorders. ...
Questcor did $652 million in trailing revenue and made $225 million in net profit. That’s good for trailing P/E of 16. Now, it should be pretty easy to see that a P/E of 16 for a profitable biotech is attractive. But if we look at recent growth and forecast growth, the valuation gets even more attractive.
Second quarter 2013 revenues were up 64% over 2012 — to $184 million. Fully diluted earnings were up 72% to $1.12 per share. Cash flow from operations was up 89% to $81.5 million.
Even better, the outstanding share count dropped from 64.1 million to 61.5 million. That’s because the company is actively buying back shares. The company has bought back a total of 22 million shares. And there’s another 6.3 million to go under the current repurchase plan. That right there is good for another 10% improvement in the share price, based on current valuation.
However, if growth continues on its current path, the valuation will improve, perhaps dramatically. Questcor is expected to earn $4.83 a share this year — a 45% improvement. In 2014, analysts expect $5.81 a share, another 20% improvement. And in fact, Questcor has beaten expectations in three of the last four quarters, so these estimates may be low.
Going forward, Questcor has a forward P/E of just 10 ... 60% lower than the trailing P/E. While we are not ready to assign a price that’s 60% higher than the current price, we firmly believe that Questcor will be deserving of a higher P/E if it hits all its growth expectations.
For that reason, we have no problem giving Questcor Pharmaceuticals a $90 price target.
Now, about that entry point: Questcor held above $65 a share between July 31 and September 10, 2013. It then traded down to $55 before its recent rebound above $60. $55 looks like support, and we expect to see some resistance at $65. Clearly, $55 would be an optimal entry point — but the stock is not likely to retest that level in the near future.
Considering that we believe Questcor is good for a 45% move higher over the next 12 months, it makes sense to be a little more liberal with our entry point. So we’ll set our entry target at $65 a share or under.
Now, given the market volatility related to the budget fight in Congress, you may get a good entry on bad news. But again, play this one too tight, and you risk missing some nice gains altogether.
Buy Questcor Pharmaceuticals at or below $65 a share. Our 12-month price target is $90.
Brian Hicks, The Wealth Advisory, www.angelpub.com, 877-303-4529, October 16, 2013