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Why Lannett Company, Inc. Shares Jumped

By Sean Williams – Feb 7, 2014 at 1:52PM

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Generic-drug producer Lannett crushes Wall Street's estimates in the second quarter. Can the good times continue or is this the top for Lannett?

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 Lannett (LCI -0.22%), a developer of generic pharmaceuticals in the U.S., jumped to the upside by as much as 15% after reporting much-better-than-expected second-quarter earnings results and raising its full-year guidance.

So what: For the quarter, net sales soared 84% to a quarterly record $67.3 million, with gross profit more than tripling to $41 million. Adjusted net income for the quarter skyrocketed to $16.6 million, or $0.46 per share, from a mere $2.9 million, or $0.10 per share, in the year-ago period. To add context to the move, Wall Street had only been looking for Lannett to report a profit of $0.35 per share on $62.2 million in sales. Lannett CEO Arthur Bedrosian notes in the company's press release that higher prices and better product mix led to the record results. For the remainder of the year, Lannett boosted its revenue guidance by 12% to a new range of $275 million-$285 million, upped its gross margin guidance to 61%-63% from a prior range of 57%-59%, and modestly boosted its R&D and marketing budget as well.

Now what: There's no other way to put it other than by saying that Lannett absolutely crushed Wall Street this quarter. Even better for shareholders, its growth looks to be sustainable with Obamacare lowering the barrier for a doctor visit and more prescriptions expected to be written. Even following today's enormous pop, Lannett is valued at less than 20 times next year's earnings estimates. Excluding any potential acquisitions, Lannett has the potential to grow its top line by roughly 10% annually for the foreseeable future, making this company attractive (to me at least) at any forward P/E below 20.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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