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Questcor Pharmaceuticals, Inc. (QCOR - Analyst Report) hit its 52-week high of $54.31 on June 26 due, in part, to its efforts to launch H.P. Acthar Gel in the lucrative rheumatology space.
This biopharmaceutical company achieved a Zacks #1 Rank (Strong Buy) based on strong positive estimate revisions. In addition , consecutive earnings surprises over the last four quarters, averaging 22.6%, make this stock a solid momentum pick.
Solid First Quarter Results
On April 24, Questcor Pharma came out with impressive first quarter 2012 results, including adjusted earnings of 58 cents per share that beat the Zacks Consensus Estimate by 16% and year-ago earnings by 222.2%.
Net sales jumped approximately 161% to $96.0 million, surpassing the Zacks Consensus Estimate of $90 million. Strong sales of H.P. Acthar Gel, its primary growth engine, contributed to the huge jump in revenues. The quarter saw Questcor Pharma ship 4,111 vials of the drug, up 104% year-over-year. The company is expected to deliver strong results going forward thanks to by H.P. Acthar Gel.
The companys strategy of rewarding stockholders through share repurchases is also impressive. Questcor Pharma exited the first quarter of 2012 with cash, cash equivalents and short-term investments of $223.7 million and no long-term debt.
In its first quarter conference call, management stated that it returned approximately $29 million to its stockholders during the quarter through its share buyback program. On May 15, 2012, the company expanded its repurchase program by 5 million shares.
Estimates on the Upswing
Following the release of first quarter results, earnings estimates moved up steadily over the last 30 days. The Zacks Consensus Estimate for 2012 rose 3.8% to $2.43 per share, driven by 3 upward revisions out of 6 estimates. For 2013, the Zacks Consensus Estimate is pegged at $3.45 per share, up 4.9% over the last 30 days.
Premium Valuation Justified
Questcor currently trades at a forward P/E of 21.7x, reflecting a huge premium of 92.0% compared with the peer group average of 11.3x. Also, on a price-to-book basis, shares are trading at 14.3x, a 429.6% premium to the peer group average of 2.7x. Given the companys strong fundamentals, the premium valuation is justified and well supported by its long-term estimated earnings growth rate of 38.7%, compared to the peer group average of 22.3%.
However, with respect to return on equity (ROE), the stock looks attractive. It has a trailing 12-month ROE of 55.6%, which is substantially above its peer group average of 23.5%. This implies that the company reinvests its earnings more efficiently than its peer group.
Shares of Questcor traded in the range of $38.51 to $43.39 between late December 2011 and late May 2012. It broke that range on June 6, 2012 driven by its strong fundamentals.
In fact, the stock has been consistently trading above its 200-day moving average since the beginning of the year. It has also remained above the 50-day moving average since June 6, 2012.
Volume is fairly strong, averaging roughly 1,813K daily. Questcor has constantly outperformed the S&P 500 since the beginning of the year. The year-to-date return for the stock is approximately 33.0%, compared with the S&P 500s return of 3.4%.
Headquartered in Anaheim, California, Questcor is a biopharmaceutical company with a market cap of $3.35 billion. The company, which operates solely in the US, was formed in 1999 following the merger of RiboGene Inc. and Cypros Pharmaceutical Corporation. Questcor Pharma primarily focuses on the areas of multiple sclerosis (MS), nephrotic syndrome (NS) and infantile spasms (IS). The marketed drugs of Questcor Pharma are H.P. Acthar Gel and Doral (insomnia). Even though H.P. Acthar Gel is approved in the US for nineteen indications, most of the revenues from the drug come from the MS, NS and IS indications.