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Why Warner Chilcott Shares Soared

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Warner Chilcott (UNKNOWN: WCRX.DL  ) , a branded pharmaceutical company focused on women's health care, shot higher by as much as 20% after the company reported its first-quarter earnings results, and on news that it could be a buyout target.

So what: For the quarter, Warner Chilcott delivered a 13% decrease in revenue to $593 million, with a decrease in Asacol sales providing the biggest hurdle. However, the company's EPS of $0.92 was $0.08 higher than Wall Street had been forecasting. Looking forward, Warner Chilcott reaffirmed its full-year guidance of $3.20-$3.30 in EPS.

What looks to be driving the share price even more is a potential buyout by Actavis (NYSE: AGN  ) (formerly Watson Pharmaceuticals). According to a Bloomberg News report, Actavis is in early talks to acquire Warner Chilcott. As expected, though, both companies declined to comment about potential buyout talks.

Now what: This is a double-dose of good news for Warner Chilcott shareholders. The company reaffirmed guidance, which would place it at a P/E this year of just five as of this writing. In addition, a buyout could be a smart and strategic way of unlocking value for shareholders, because, for whatever reason, a P/E of five hasn't been enough to entice them up until now. I've been intrigued by Warner Chilcott for some time and think, even after today's run higher, it could make for a solid buy.

Craving more input? Start by adding Warner Chilcott to your free and personalized watchlist so you can keep up on the latest news with the company.

While you can certainly make huge gains in pharmaceuticals like Warner Chilcott, the best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.

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