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Bull of the Day: Dr. Reddy's Laboratories

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Obviously, the last three months have been brutal for equity investors. Fears about interest rates, the yield curve, trade wars, budget impasses, Brexit, and a host of other concerns have conspired to take almost all stocks lower – in many cases sharply lower.

Blue-chips, tech stocks, small caps, and even the usually defensive sectors like heath care and consumer staples have all been sold off broadly.  It’s hard to find a stock that has even managed to keep its head above water as uneasiness turned to fear and then to panic.

Not all stocks have been battered, though.

Since the S&P 500 began the steep decline at the beginning of October that has taken that broad market index down 20%, Dr. Reddy’s Laboratories (RDY - Free Report) has actually gained almost 12%.

An Admirable Mission That’s Also Profitable

Founded by a scientist who recognized that life-saving medications were often too expensive for a large portion of the world’s population, Dr. Reddy’s goal was to accelerate access to affordable and innovative medicines for as many people as possible. The realization of that goal is a state of the art research facility, employing 800 research scientists as well as extensive support personnel and with several strategic partnerships.

RDY’s business is fully vertically integrated, offering products and services at all levels of the pharmaceutical supply chain – starting materials, intermediates, active ingredients and finished dosages. Their research encompasses cancer, diabetes, cardiovascular disease, inflammation and bacterial infection, serving the world markets, focusing on India, the US, Europe and Russia.

The company is divided into three units, Pharmaceutical Services and Active ingredients, Global Generics and Proprietary Products.

Experience in navigating the various regulatory requirements in all of the jurisdictions in which they operate allows them to be first to market with in-demand and life-saving medications all around the world. In their most recent report to investors, the company lists “Actively work with the regulatory agencies for accelerating the new product approvals” as one of its key priorities.

Earlier in December, Dr. Reddy’s won an important decision in US Federal Circuit court that will allow it to sell its generic version of Suboxone, which is widely prescribed to treat opioid use disorder – a potentially enormous market for RDY as that epidemic continues to grow in the US, and also potentially a life-saver for those who are afflicted.


Having earned $1.01/share in FY 2018, future estimates are on the rise for RDY, with the Zacks Consensus Estimate for FY 2019 currently at $1.42/share – an increase of 40%. Estimates for FY 2020 show even stronger growth, up another 50% to $2.13/share.

Dr. Reddy’s Laboratories is a Zacks Rank #1 (Strong Buy).

Though it currently trades at a forward P/E ratio of 26X, which is a premium to the Drug Industry average of 19X, RDY’s strong balance sheet boasts a debt/equity ratio of just 21%, well below the industry average of 66%, potentially allowing the company to make strategic investments and/or acquisitions that might not be feasible for the competition.

Even when the market looks dark for almost all stocks, there are still some shining stars out there, and Dr. Reddy’s Laboratories has certainly been one of them.

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