Why Warner Chilcott Shares Soared

A competitor goes shopping, and Warner Chilcott may be on its "to buy" list.

Sean Williams
Sean Williams
May 10, 2013 at 2:28PM
Health Care

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.