During Transition, Alpharma Risky
Alpharma, Inc. (ALO) is a pharmaceutical company with operations in human and animal pharmaceuticals. With the sale of the generics and API business segments, Alpharma is focusing on establishing itself as a specialty pharmaceuticals company.
We expect 2008 to be another transitional year for the company with earnings declining significantly, mainly due to increased sales, general and administrative (SG&A) spending related to the launch of Flector Patch. In the absence of any potential catalysts, investor focus will remain on the acceptance and ramp-up of Flector Patch. Although we expect earnings to rebound in 2009, we remain concerned about Kadianâ?s growth prospects and the sales ramp of Flector Patch.
The company recently sold its API business for $365 million. This deal makes sense, as the API business had been struggling over the past couple of years, mainly due to increased competition and pricing pressure. The sale has provided Alpharma with funds to expand its pharmaceuticals product portfolio in existing as well as new therapeutic areas.
With the loss of revenue and operating income from the API business, we expect the deal to be EPS dilutive in 2008. Based on our revised model, we see the company delivering EPS of $0.31 on revenues of $696.5 million in 2008.
Although we expect earnings to rebound in 2009, we believe that investor focus will remain on the company's ability to maintain Kadian growth and Flector Patch sales. Alpharma shares are currently trading at 82.1x our estimated calendar year 2008 EPS of $0.31. We believe the shares are over-valued at current levels. We rate the stock a Sell with a $20 price target. Our price target is based on 25.3x our 2009 EPS estimate.
Skirt Hawaiian Electric For Now
Hawaiian Electric Industries, Inc. (HE) reported consolidated net income in the first quarter of 2008 of $34 million, or $0.41 per share, compared to $6.8 million, or $0.08 per share, and $32.3 million, or $0.40 per share, for the first quarters of 2007 and 2006, respectively. Electric utility net income for the first quarter of 2008 was $24.6 million compared to $0.5 million and $21 million for the first quarters in 2007 and 2006, respectively.
Kilowatt/hour sales were flat compared with the same quarter of 2007 primarily due to conservation and demand-side management programs offsetting the impact of slightly warmer temperatures and an additional day of sales in February due to the leap year. Meanwhile, operations and maintenance expenses were up $4.7 million or 6% quarter-over-quarter and the utility expects this higher level of expense to continue due to additional planned production and transmission and distribution maintenance work. The utility also recorded $1.2 million in higher quarter-over-quarter depreciation expenses due to 2007 plant additions.
