Pharmaceuticals Stocks

Impax Laboratories Inc – Initial Coverage $IPXL

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – December 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Impax Laboratories Inc (IPXL) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Impax Laboratories, Inc. is a specialty pharmaceutical company. The Company is engaged in the development, manufacture and marketing of bioequivalent pharmaceutical products (generics), as well as the development and marketing of branded products. Its segments include Impax Generics and Impax Specialty Pharma. The Impax Generics segment is focused on the development, manufacture, sale and distribution of its generic products, which are the pharmaceutical and therapeutic equivalents of brand-name drug products and are marketed under their established drug names. The Impax Specialty Pharma segment is engaged in the promotion, sale and distribution of various branded products, including its branded pharmaceutical product, Rytary, an extended release oral capsule formulation of carbidopa-levodopa for the treatment of Parkinson’s disease, post-encephalitic Parkinsonism and Parkinsonism, and Zomig (zolmitriptan) products, indicated for the treatment of migraine headaches.

IPXL Chart

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of IPXL – January 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $1,059,613,602 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.09 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -139.81% Fail
6. Moderate PEmg Ratio PEmg < 20 -45.23 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.11 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.09 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.22 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

EPSmg -$0.31
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth -$4.50
MG Value based on 0% Growth -$2.64
Market Implied Growth Rate -26.86%
Current Price $14.02
% of Intrinsic Value N/A

Impax Laboratories Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, insufficient earnings stability or growth over the last ten years, the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability or growth over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $1.42 in 2012 to an estimated $-0.31 for 2016. This level of negative earnings does not support a positive valuation.As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Impax Laboratories Inc revealed the company was trading above its Graham Number of $0. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was -45.48, which was below the industry average of 28.95, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-7.22.

Impax Laboratories Inc scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$7.22
Graham Number $0.00
PEmg -45.48
Current Ratio 2.09
PB Ratio 1.11
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2016
Total Current Assets $700,586,000
Total Current Liabilities $334,533,000
Long-Term Debt $812,375,000
Total Assets $2,119,656,000
Intangible Assets $1,099,607,000
Total Liabilities $1,215,796,000
Shares Outstanding (Diluted Average) 71,331,000

Earnings Per Share History

Next Fiscal Year Estimate -$2.60
Dec2015 $0.54
Dec2014 $0.81
Dec2013 $1.47
Dec2012 $0.82
Dec2011 $0.97
Dec2010 $3.82
Dec2009 $0.82
Dec2008 $0.26
Dec2007 $2.06
Dec2003 -$0.28
Dec2002 -$0.42
Dec2001 -$0.60
Dec2000 -$0.91
Dec1999 -$1.12
Dec1998 -$0.73
Dec1997 -$1.97
Dec1996 -$1.08

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate -$0.31
Dec2015 $0.86
Dec2014 $1.21
Dec2013 $1.47
Dec2012 $1.42
Dec2011 $1.68
Dec2010 $1.80
Dec2009 $0.69
Dec2008 $0.48
Dec2007 $0.39
Dec2003 -$0.52
Dec2002 -$0.68
Dec2001 -$0.90
Dec2000 -$1.08
Dec1999 -$1.10
Dec1998 -$0.98
Dec1997 -$0.94

Recommended Reading:

Other ModernGraham posts about the company

None.  This is the first time ModernGraham has covered the company.

Other ModernGraham posts about related companies

Akorn Inc Valuation – December 2016 $AKRX
SciClone Pharmaceuticals Inc Valuation – Initial Coverage $SCLN
Regeneron Pharmaceuticals Inc Valuation – November 2016 $REGN
Merck & Co Inc Valuation – August 2016 $MRK
Mallinckrodt PLC Valuation – August 2016 $MNK
Vertex Pharmaceuticals Inc Valuation – August 2016 $VRTX
Amgen Inc Valuation – August 2016 $AMGN
Pfizer Inc Valuation – August 2016 $PFE
Abbott Laboratories Valuation – August 2016 $ABT
Johnson & Johnson Valuation – August 2016 $JNJ

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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