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We recently maintained our Neutral recommendation on Warner Chilcott . Our target price is $21.00 per share.

Why the Reiteration?                                             

Warner Chilcott’s first quarter 2013 earnings (excluding special items) of 92 cents per share beat the Zacks Consensus Estimate of 85 cents. Lower selling, general & administrative costs boosted earnings in the reported quarter. The company earned $1.16 per share in the first quarter of 2012.

Revenues in the first quarter of 2013 declined 13.4% to $593 million. The decline was primarily attributable to lower sales of its osteoporosis drug, Actonel due to generic competition. Moreover, reduced sales of dermatological product Doryx and gastroenterology product Asacol hurt revenues in the first quarter of 2013. Revenues, however, beat the Zacks Consensus Estimate of $589 million.

Warner Chilcott will be acquired by Actavis, Inc. (ACT - Analyst Report) by year-end. The successful completion of the deal will create a leading global specialty pharmaceutical company with combined annual revenues of about $11 billion.

We believe that the creation of the combined entity will be beneficial for Warner Chilcott, which is facing declining revenues as a standalone entity due to genericization of key drugs. We see limited upside from current levels and hence retain our Neutral stance on the stock.

Stocks That Warrant a Look

While we expect Warner Chilcott to perform in line with its peers and industry levels in the coming months and advice investors to wait for a better entry point before accumulating shares, one can look at Auxilium Pharmaceuticals Inc. (AUXL - Analyst Report) as a good buying opportunity. The stock carries a Zacks Rank #2 (Buy). Another favorably placed company is Jazz Pharmaceuticals Public Limited Company (JAZZ - Analyst Report) with a Zacks Rank #1 (Strong Buy).

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