Great Price for Somaxon

Under heavy selling pressure, the share price of pharma company Somaxon Pharmaceuticals, Inc. (SOMX), is down by 75 per cent from the highs of last spring, leading Zacks senior pharmaceutical industry analyst Jason Napodano, CFA to reiterate his Buy rating on the shares. The following excerpts explain his position:

'Somaxon's stock has been under heavy selling pressure over the past several months on fears that its much promised partnership on Silenor will never materialize. The stock is down some 75% since the highs of last spring, and at this point it looks like the NDA filing on Silenor will take place in mid-February alone. We are left scratching our heads as to when a deal will finally get done.

'However, at this point the shares are enormously undervalued with a market capitalization of only $75 million. Management is sitting on $35 - $40 million in cash and very near to file for approval of a $500 million potential drug. We continue to be aggressive buyers of the stock, although we are dropping our price target to a more realistic $12.

'Somaxon management is currently looking for the best strategic option to maximize the potential for Silenor. This can include a partnership with a major pharmaceutical company or an outright sale of the company. Our best guess is that the total deal size is in the area of $250 million. This alone has the potential to move the stock significantly higher.

'We believe that investors should buy the name up to $12. We arrive at this figure by applying a 25x multiple to our 2011 EPS of $2.51 and discounting back to present day at 35%. Our $12 target equates to a market capitalization of $225 million, triple the current price today.'

EV3 Evenly Traded

A Hold recommendation has been issued to medical products company EV3, Inc. (EVVV) by Zacks senior medical industry analyst Gregory Aurand, CFA. Here's what his latest update had to say about it:

'The company reported preliminary results for fourth quarter and full year 2007 with lower-than-expected revenues. FoxHollow contributed $20.9 million to total sales. The weakness in the fourth quarter is attributed to merger-related distractions, SilverHawk inventory and product introduction delays. The company again lowered its 2008 projections with increased expenses and a lower top-line outlook of $500 million.

'On the lowered outlook, we now expect the combined company to earn approximately $0.20 GAAP EPS per share on anticipated $499 million in revenue in 2008. Our 2009 expectations are also lowered to $599 million in revenue and $0.52 EPS. At the current price, EVVV trades at 2.1x 2008 revenues.

'Given the reduced outlook and growth and continued expected integration difficulties, we believe the company is appropriately valued at industry averages. Our estimates once again decline. Roughly in-line with the industry median of 2.5x 2008 revenues, our target moves lower to $12. The company reported preliminary results for fourth quarter and full-year 2007 with lower-than-expected revenues.'

Optimistic on OPNET

An update has just come out today on OPNET Technologies, Inc. (OPNT) in which senior software analyst Steve Biggs, CFA is restating his Buy rating on the company. We excerpted the following details:

'OPNET's acquisition of Network Physics dramatically improves its time to market with two major initiatives, ACE Live and its appliance. Although initially dilutive, the numbers look much better once non-cash and one-time expenses related to the acquisition are accounted for. We expect the company to break-out these items during its Q3 earnings conference call.

'OPNET offers a differentiated solution with its focus on analytics, while most automation solutions focus on management of networks and datacenters. With its analytical solutions, IT professionals can optimize applications running on their networks.

As networks and applications become more complex, the ability to quickly resolve performance problems becomes more critical. In addition, OPNET solutions can be used in the application development process to head off problems before they occur.

'With the addition of Network Physics, engineers will be able to determine the performance on a real time basis, giving them the ability to solve performance problems with ACE before a larger disruption occurs. This acquisition accelerates time to market of OPNET s previously announced ACE appliance and ACE live products. OPNET has been rapidly ramping its sales force.