Guidance In-Line for Cephalon
Cephalon, Inc. (CEPH) is an international biopharmaceutical company focused on the discovery development and marketing of products for the treatment of sleep disorder, neurological disorders, cancer and pain. These products are marketed in the U.S. and in several European countries.
The settlement of all Provigil patent infringement cases has been a significant positive for Cephalon. With Provigil protected from the entry of generics until October 2011, we believe that investor focus will shift towards the company's emerging oncology pipeline and Amrix.
We were pleased to see Treanda, Cephalon's lead oncology candidate, receive approval recently. We had a Sell rating on Cephalon for some time, as we were fully expecting a generic launch of Provigil during the second half of 2006. However, Cephalon management prudently and effectively settled all four infringement cases. This is clearly something we got wrong, and we are impressed by the management's ability to save the franchise.
While 2007 was a transitional year for the company with earnings declining 11% year-over-year, we expect growth to return in 2008. The company provided guidance for 2008, and while revenue guidance was slightly below our expectations, earnings guidance was in-line with our expectations.
We expect the company to deliver diluted EPS of $4.58 in 2008 on revenues of $1.88 billion. We currently rate the shares a Hold with a $70 price target. Our target is based on 15.3x our 2008 earnings estimate of $4.58 per diluted share. Potential positive catalysts could be favorable data on CEP-701, FDA approval of Treanda for the indolent NHL indication, and a label expansion for Fentora.
Buy China Fire & Security
As the leader in China's industrial fire safety market, China Fire & Security Group, Inc. (CFSG) is well-positioned to leverage the growth potential in this market. Its revenue and earnings have exceeded the market consensus for three consecutive quarters since the market began covering this company in July 2007.
We believe that CFSG can grow its earnings 30% annually for the next five years. We don't think its current price fairly reflects the company's growth prospects. So we are maintaining our Buy rating on CFSG's stock.
Revenues for 2007 increased 44.1% to $46.8 million compared to $32.5 million for 2006. During 2007, the company fulfilled 274 total solution and product sales contracts compared to 221 contracts in 2006. Gross margin for 2007 was 54.9%, up from 50.0% in 2006. Net income was $16.8 million for 2007 as compared to $7.0 million for 2006, representing an increase of 9.8 million or 141.1%. Fully diluted GAAP EPS were $0.61 for 2007 as compared to $0.28 of 2006.
The company expects that revenues in 2008 will be at least $66.6 million, an increase of 43% above 2007.
