Depomed, Inc. (DEPO)

We are reiterating our positive rating on Depomed (DEPO - Analyst Report). We are very excited about the recent positive phase III data for DM-1796 in PHN and believe the market has yet to factor in the potential that this drug has in terms of delivering milestones and royalties to the company from partner Abbott Labs.

Up next for Depomed is the phase III Breeze data testing Serada in menopausal hot flashes. This data is expected before the end of the month and should help drive the shares upward towards our new $12 target.

Finally, the company is in a solid cash position and should end the year with over $70 million in the bank. Our $12 target is based on 20x our 2013 EPS estimate of $2.12, discounted back to present day at an aggressive rate of 25%.