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Here's Why Endo International Rose as Much as 37.1% Today

By Maxx Chatsko - Updated Aug 8, 2018 at 4:54PM

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Investor optimism pushes shares higher, but there is still a long way to go for a turnaround.

What happened

Shares of Endo International (ENDP -0.19%) rose over 37% on Wednesday after the company reported second-quarter and first-half 2018 earnings. The business actually saw total revenue in the first six months of the year fall 26% compared to the year-ago period, while adjusted diluted earnings per share dropped 34% in that span.

But the comparisons are a bit choppy because a handful of contributors from last year have since left the company's portfolio. The important thing is that the perception of the business has changed for the better. Investors are optimistic that ongoing initiatives can turn things around in the future. 

Considering shares have lost nearly 80% of their value in the last three years following legal settlements and multiple spats with the Food and Drug Administration, there's a long way to go before Endo International can declare success for its turnaround. But reporting a net loss from continuing operations of "only" $52.5 million in the second quarter of 2018 was a pretty big start, believe it or not, as there weren't any major write-offs for the first time in a few quarters.

As of market close, the stock had settled to a 28.3% gain.

A woman checking her smartphone and pumping her fist in excitement as cash money falls around her.

Image source: Getty Images.

So what

While management explained that its U.S. generic pharmaceuticals segment continues to face challenges in the marketplace, the sterile injectables and specialty pharmaceuticals segments are doing their part to pick up the slack.

Sterile injectables delivered $218 million in revenue in the most recent quarter, and grew 21% compared to the second quarter of 2017. The segment represented 30% of total revenue during the quarter. Meanwhile, sales of specialty products grew 9% in the second quarter compared to the year-ago period thanks to strong sales of Xiaflex, which jumped 27% year over year. 

The strong results allowed management to raise its full-year 2018 guidance as follows:

  • Total revenue of $2.75 billion to $2.85 billion. The previous range was $2.6 billion to $2.8 billion.
  • Adjusted diluted EPS from continuing operations of $2.50 to $2.60. The previous range was $2.15 to $2.55.
  • Adjusted EBITDA from continuing operations of $1.27 billion to $1.33 billion. The previous range was $1.2 billion to $1.3 billion.

Now what

Given all the headaches and uncertainty in recent years, Mr. Market has kept Endo International stock severely undervalued -- based on traditional valuation metrics, anyway. But considering the company has $8.3 billion in debt, compared to a market cap of just $3.6 billion, investors may not want to go all-in on the idea that this is a value stock just yet. The business will likely need to deliver consistently profitable operations before it gains more respect from Wall Street. In the meantime, investors should expect this pharma stock to come with above-average volatility.

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