Editors Note:

The biotech sector has been erratic recently and some stocks have fallen to bargain lows for no specific reason. Lannet is one of those stocks. Shares fell more than $10 after blowout earnings in late August. Time to buy support?


LCI - Lannet - Company Profile

Lannett Company, Inc. develops, manufactures, packages, markets, and distributes generic versions of brand pharmaceutical products in the United States. It offers solid oral, extended release, topical, nasal, and oral solution finished dosage forms of drugs that address a range of therapeutic areas, as well as ophthalmic, patch, foam, buccal, sublingual, soft gel, and injectable dosages. The company provides its products for various medical indications comprising glaucoma, muscle relaxant, migraine, anesthetic, congestive heart failure, gastrointestinal, cardiovascular, thyroid deficiency, central nervous system, urinary, dryness of the mouth, gout, hypertension, and gallstone. It also manufactures active pharmaceutical ingredients. Lannett Company, Inc. markets its products under the Diamox, Fioricet, Fiorinal, Lanoxin, MiraLAX, Imdur, Levoxyl/Synthroid, Metadate CD, Concerta, Procardia, Prilosec, Ditropan, Protonix, Salagen, Dyazide, and Actigall brands. Company description from FinViz.com

For Q2, LCI reported earnings of 73 cents that beat estimates for 60 cents. Revenue of $169 million beat estimates for $162 million. Lannet guided for full year revenue in the range of $690-$700 million. Analysts were expecting $666 million.

Revenue increased 70% thanks to new drugs in inventory. They refinanced $250 million in 12% notes to take advantage of the current low interest rates. The forecast an earnings growth rate in the mid teens percentage for the second half of the year.

Shares immediately spiked from $32 to $40 on the earnings news and then faded on post earnings depression. A rebound began on Sept 12th culminating with a spike to $33.50 on the 20th when they announced the FDA approval of two new drugs. That appeared to trigger a sell the news event and shares rolled over and fell to $26 over the next week. The next day after the drug announcement, they also said their Chief of Scientific Affairs resigned. That could have accelerated the decline.

Fast forward to September 29th and shares found support at $26 for three days and prices are now beginning to rise. There is no reason for LCI to be declining. It has fallen to value stock status and fund managers should be drooling over it for their October portfolio restructuring. If this is the bottom, we can enter a cheap position as they rally into earnings on Nov 3rd. Remember they blew away estimates in Q2.

Earnings Nov 3rd.

Buy Nov $30 call, currently $1.80, initial stop loss $25.85.


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