Warner Chilcott Limited

Warner Chilcott Limited (WCRX - Snapshot Report) beat Wall Street estimates in the third-quarter by 18.18% as its strategy of focusing on specialist doctors pays off. The company has surprised on estimates 4 consecutive quarters by an average of 13.64%. The stock is cheap. WCRX is trading at only 8.6x forward earnings.

Company Description

Warner Chilcott is a specialty pharmaceutical company that manufactures prescription drugs in two segments: women’s healthcare and dermatology. The company's primary manufacturing facility is located in Puerto Rico.

WCRX, a Zacks #1 Rank (strong buy), intends to grow by focusing its products on therapeutic areas controlled by specialist physicians.

WCRX's strongest segment is in the hormonal contraceptive and hormone therapy (HT) drug categories. The company currently promotes two oral contraceptives, including Loestrin 24 Fe, which has a patented 24-day dosing regimen.

In the dermatology category, the company manufactures Dovonex and Taclonex, external creams and ointments for treatment of psoriasis, and Doryx, an oral tetracycline for the treatment of acne.

Warner Chilcott Beat Wall Street Estimates for the Third Quarter by 18.18%

On Nov 10, Warner Chilcott reported third quarter earnings that surprised on analysts' estimates by 6 cents a share. Net income rose to $40.1 million from $5.8 million in the year ago period. Earnings per share totaled 39 cents compared to analysts' estimates of 33 cents.

Revenue climbed 2.4% to $231.9 million from $226.4 million in the year ago period. The increase was due to higher sales of Doryx, Loestrin 24 FE, Taclonex, and Femcon FE which, combined, added $35.3 million of growth to the quarter compared to a year ago.

While sales of oral contraceptive products fell 1.8% in the quarter compared to 2007, sales of Loestrin 24 FE jumped 32.9% from the third quarter of 2007. The increase was primarily due to more filled prescriptions and higher average selling prices compared to a year ago.

Dermatology was the stronger segment, with sales rising 15.9% to $15.1 million. Sales of Doryx rose 53.3% and sales of Taclonex gained 15.3% compared to a year ago. Higher average selling price contributed to the increase in sales in both drugs.

2008 Full Year Guidance Raised

Given the strong year to date results, Warner has raised its 2008 full year EPS forecast to be in the range of $1.38 to $1.43, up 8 cents from the prior guidance provided in August.

Consensus Estimates Rise

Over the last week, covering analysts have been raising both fourth-quarter and full-year estimates. Fourth-quarter consensus estimates rose 3 cents to 36 cents and full-year estimates climbed 11 cents to $1.42. The full-year is now in line with the company's revised guidance.

Analysts expect 2008 year-over-year earnings growth of 23.19%.

Value Fundamentals

Warner Chilcott is even cheaper than when we last reviewed it on Mar 11. It now trades with a P/E of only 8.6. Its price-to-book is 2.35. The company has a solid 1-year return on equity (ROE) of 21.93%. However, unlike some other drug companies, it does not pay a dividend.