Please ensure Javascript is enabled for purposes of website accessibility

Why Endo International plc Earned a Lower Price Today

By Brian Orelli, PhD - Feb 29, 2016 at 1:44PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

An announcement about subsidiary ASTORA Women's Health in the company's earnings release has investors spooked.

IMAGE SOURCE: ENDO.

What: Endo (ENDP -8.85%) is down 17% at 12:50 p.m. ET after releasing fourth-quarter earnings this morning.

So what: With that kind of drop, you'd expect that the drug company had missed guidance substantially, but that wasn't the case.

Fourth-quarter revenue came in at just over $1 billion -- up 62% year over year thanks to the addition of acquisition of Par Pharmaceutical -- which put the full-year revenue toward the top end of the company's guidance. And the full-year adjusted diluted EPS of $4.66 exceeded the top end of its guidance.

It's hard to see how the guidance for this year would be upsetting investors that much, either. Management said to expect revenues to be between $4.32 billion and $4.52 billion, up at least 32% year over year at the low end. And adjusted EPS are expected to be between $5.85 and $6.20, up 25% at the low end.

The big issue seems to be the fact that Endo decided not to sell its ASTORA Women's Health division and instead plans to shut down the operation. It's not the lost revenue that's the issue -- the division will shut down by the end of March, so the aforementioned guidance takes that into account -- but the potential for future lawsuits from the mesh implants the company sold.

Now what: The risks from lawsuits over the mesh implants were already known -- many have already been settled -- but Endo threw fuel on the fire when the company said it's shutting down ASTORA to avoid a bigger legal bill later on.

Investors often overreact on legal issues, but who can blame them; if you're not a lawyer -- and maybe even if you are -- it can be really hard to gauge the potential risk for a large legal bill. At some point, Endo becomes a good buy even with the legal risk, but without knowing the potential risk, it's hard to set that price.

Brian Orelli and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Endo International plc Stock Quote
Endo International plc
ENDP
$0.39 (-8.85%) $0.04

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
390%
 
S&P 500 Returns
125%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/11/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.