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Why Cambrex Corp. Shares Were Clobbered

By Sean Williams – Feb 11, 2014 at 2:48PM

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Cambrex delivers solid fourth-quarter growth, but comes up short of Wall Street's lofty 2014 expectations. Are investors overreacting or are things as bad as they appear?

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 Cambrex (CBM), a life sciences company that provides active pharmaceutical ingredients and pharmaceutical intermediates to branded and generic drug developers, sank as much as 19% after the company reported fourth-quarter results and announced its full-year 2014 guidance.

So what: According to Cambrex's report, revenue increase 46.3% during the quarter to $103 million, while fourth-quarter EBITDA jumped to $22.2 million and adjusted earnings per share came in at $0.30 compared to a one-time tax benefit removed $0.22 last year. Both figures actually surpassed Wall Street's expectations for just $0.29 in EPS on $93.8 million in revenue. Cambrex's report notes strong branded active pharmaceutical ingredient sales offset by weaker sales of generic APIs. Looking at 2014, however, is where the wheels went flat. Cambrex forecasts EPS of $0.99-$1.10 on sales growth of 8%-12%, suggesting $340 million-$352 million in revenue. While the revenue figure meets the Street's forecast, the midpoint of EPS is modestly below the current consensus of $1.11.

Now what: Cambrex has had an incredible run over the past couple of weeks, so today's throttling seems fitting since its guidance simply didn't meet lofty shareholder expectations. However, I would certainly consider a decent pullback in this stock as grounds to give it a deeper look. It's clear that Cambrex's API portfolio is expanding and its top line is certainly capable of roughly 10% growth per year. This means plenty of growth potential for investors if Cambrex's share price continues to fall.

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.

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