Third-quarter results from health-care and consumer-products firm Chattem
First, a recap of this morning's results. Total sales grew an impressive 51%, as Chattem gets to count the five brands it recently acquired from Johnson & Johnson
However, reported earnings advanced a much less 7.1%, as last year's quarter included a litigation settlement recovery related to appetite suppressant Dexatrim. And when stripping out sales gains from the recent acquisition, organic sales growth was in only the single digits. Management did increase the full-year earnings guidance to $3.15-$3.25, but when including stock options expense, the projections fall to $2.96-$3.06.
That puts the forward P/E at a lofty 22 given the recent share price run, which is more than 20% higher than the projected multiple for Procter & Gamble
Granted, there could be further upside in Chattem's results going forward, as it is clearly seeing success in integrating new brands into its portfolio, with plenty of opportunity for cost synergies. But I can't help thinking that top-line growth will quickly slow to the high-single-digit rates Chattem was posting before the acquisition. And in terms of acquired brands, they bring stable results but are unlikely to have significant upside sales potential. At the current valuation, I'm thinking the market is discounting years of double-digit sales and earnings growth, which could prove difficult to achieve.
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Fool contributor Ryan Fuhrmann is long shares of J&J and Pfizer, but has no financial interest in any other company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.