Par Pharmaceutical Companies Inc.

Generic drugs are the sweet spot for the drug makers. Par Pharmaceutical Companies Inc. (PRX - Snapshot Report) recently surprised on the Zacks Consensus for the 8th quarter in a row. It's stock has been on a roll but shares still trade at just 12.5x forward estimates.

The New Jersey based pharmaceutical company is not all generic drugs. It has two divisions, the one that produces high barrier-to-entry generics and a second division that develops niche, proprietary drugs.

Par Reports Record Quarterly Gross Margin in the Third Quarter

On Nov 3, Par reported its third quarter results and continued its incredible streak of beating the Zacks Consensus, this time by 59%. Earnings were 86 cents compared to the Zacks Consensus of 54 cents.

Gross margin was a record 44.1% compared to 31.3% in the third quarter of 2009. It increased due to the launch of omeprazole as well as increases in its other generic products. The gains were somewhat offset by lower metroprolol, clonidine and meclizine sales.

Revenue, however, fell to $234.4 million from $294.8 million in the year ago quarter due to added competition for several of its drugs.

The company is bullish about the future. It has 27 ANDAs pending with the FDA. Par considers 11 of them to be first-to-file opportunities. These ANDAs have a brand value of about $7.3 billion.

Zacks Consensus Estimates Rise

Analysts have been boosting estimates all year on this Zacks #1 Rank (strong buy). In the last 30 days, the 2010 Zacks Consensus jumped 46 cents to $2.96 per share.

This is earnings growth of 18%.

2011 looks equally as strong as the Zacks Consensus has moved up to $3.44 from $3.03 in the same 4 weeks. Analysts see another 16.2% growth in earnings.

Par Remains a Value

In addition to an attractive P/E ratio, it also has a price-to-book ratio of 2.2, which is well within the value parameters as its under 3.0.

The company's price-to-sales ratio is also a healthy 1.2, under its peers at 1.5. Some peers, like Dr. Reddy Labs Ltd. (RDY - Snapshot Report) trade with much higher P/S ratios. Dr. Reddy Labs has a P/S ratio of 4.4.

Par has a solid 1-year return on equity (ROE) of 19% which is in line with its peers.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.

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