Is it all over for Endo Pharmaceuticals?

The way Endo Pharmaceuticals (Public, NASDAQ:ENDP) chart has been looking lately; you would think that it is the end.  But it’s not December 21st 2012 yet people. There is still some life in Endo - read on to find out why it’s going back to $30 a share.

Endo One year Chart: 

In April Endo released financial results for its first quarter under new leadership, and influences of the uprising by Endo's largest shareholder, D. E. Shaw Group (which owns just less than 10% of shares outstanding), are noticeable all over the company.

In late February, D.E. Shaw was pushing Endo to make a huge share buyback. The campaigner and its allies got their way earlier this month (after ushering in a new Endo CEO in March), although Endo agreed to repurchase no more than half of D.E. Shaw's suggested $1.5 billion worth of shares.

Exclusively from these buybacks, rather than any changes in its revenue prospects, Endo raised its financial guidance by $0.12 per share; it now projects earnings per share of $2.15 to $2.19 for 2008.

 It’s a $750 million buyback people – that’s a lot of cheddar. You can expect the stock to start climbing because of that as soon as they start buying.

In February, the company reported a solid rise in fourth-quarter results, beating Wall Street profit expectations, as well as raising its full-year top- and bottom-line guidance.

So with Endo Pharma, we have a buyback, solid earnings expectations, and what is in my opinion a hugely discounted stock.

The Downside:

The stock was recently downgraded on May 2nd by Roth Capital, here it is:

NEW YORK (AP) -- A Roth Capital Partners analyst downgraded shares of Endo Pharmaceuticals Holdings Inc. Friday, saying weak sales of key drugs will prevent the stock from rising much higher.

Scott Henry lowered his rating to "Hold" and his price target to $28 per share as he assumed coverage of Endo. He said Endo's Voltaren osteoarthritis gel and the Lidoderm pain patch are not selling as well as he expected, and potential patent challenges to Lidoderm are a major risk to the stock.

Previously, Roth analyst Greg Gust rated the stock "Buy," with a price target of $34 per share.
Henry said patients seem to dislike the large amounts of Voltaren they are supposed to use, while competition is hurting Lidoderm sales. He added that Endo is likely to buy a smaller company soon, and investors should wait to see what the company is planning.

Is Scott Henry high on crack?

If you read what I just read, then you may think that Roth Capital’s Scott Henry has been angel dust mixed with some PCP and crack. He may have a point on the Lipoderm patent challenges, but trust me, independent research is usually going to benefit you a lot more than mainstream wall street analysts like Roth Capital.

Disclaimer: The author has no shares of the securities mentioned in this article

Article written by Eric Cheshier

Co-Founder of theStockMasters.com

If you liked this article, Eric Cheshier also contributes to the Master Picks Newsletter and the Quant Method , only available at WallstNewsletters.com.