Monday, March 31, 2008

Schering-Plough (NYSE:SGP): Buying it down 20% in pre mkt

Couple of firms comment on Schering-Plough (NYSE:SGP) following the ENHANCE trial results:

- Deutsche Bank is lowering their tgt to $21.50 from $25.50 saying the ack of new insight from theENHANCE results was no surprise, but the tone of the panel "discussion", NEJM commentary and ensuing media coverage was more negative than anticipated. Additional trauma for the JV franchise, with immediate volatility in Rx demand and declines in market share is the likely near term outcome in firm's view.

Based upon the fallout from the NEJM ENHANCE publication, and two published editorials, they suspect a new round of RX declines, and a more negative impact on SGP's earnings outlook. Specifically, the firm expects that the JV, which represents 80% of SGP's net income, may fall 25%, back to its levels in '06. This equates to a decline in '08 estimate from $1.47 to $1.22. Firm has tried to be appropriate, and conservative in their assessment, but obviously, only the RX data over the next several weeks will tell the story.

SGP's EPS may decline 12% this year, while EPS may only recover to a level 4% higher in '09 than the EPS the comany achieved in 2007.

- Lehman: SGP (2-EW/1-Pos, $19.30, PT$20, $29b) A Butler - Downgrade 1-OW to 2-EW - ACC panel commentary neg; greater total Rx decline; uncertainty of mgd care formulary position; JV income from Zetia/Vytorin (~60% of ’09 EPS) materially impacted; cut ’08 $1.67 to $1.40 (v $1.52 cons), ’09 init $1.59 (v $1.73 cons); cut tgt $35 to $20.

- Goldman Sachs downgrades to Neutral from Buy.

Notablecalls: SGP is down 20% in pre mkt (trading at $15.80 as I write this). I've been buying around that level. Why?

- The stock has been cut in half, mainly bc of concerns regarding Vytorin/Zetia. Yes, sales and EPS will be hit but it's priced in here.

- I believe this is the moment smart money has been waiting for. Last time we had an opportunity to buy SGP was around 2002 when Hassan came in an cut the dividend. I remember buying the stock below $14 in pre mkt. This was the low.

- You gotta buy healthcare here. It's one of the safe havens.


Huss said...
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notablecalls said...

for the record: my avrge is now 15.03