Reiterating his Buy recommendation on Schering-Plough (SGP) shares today, Jason Napodano, CFA explains his position in his latest updated report on the company:
"Schering-Plough is engaged in the development, manufacturing and marketing of pharmaceutical products around the world. The company focuses on prescription drugs, animal health, foot-care and sun-care products. Based on a successful turnaround and strong sales of key drugs such as Remicade and Vytorin/Zetia, the company should deliver the highest four-year earnings growth rate in the large-cap pharmaceutical industry.
"SGP expects to close the previously announced Organon Bio acquisition later this year for a mix of $14.4 billion in cash/debt/equity. We believe that valuation is attractive given the high growth rate and projected future EPS. Our target is $38.
"Our Buy rating is based on the strong earnings growth and attractive valuation based on recovery 2009 EPS of $1.78, without Organon. Based on this 2009 EPS, the stock is currently trading at 16.8x earnings. This is a premium to the 15.5x 2009 EPS at which the rest of the large-cap pharmaceutical group trades. However, Schering-Plough will see EPS growth in 2009 of 18%, over twice that of the peer-group."