We are raising our price target from $16.00 per share to $27.00 per share.
Our positive investment sentiment toward El Paso Corporation is based on its industry-leading pipeline infrastructure and $7 billion multi-year project backlog, the high grading of its E&P business and production growth profile and the management's ability maximize value for shareholders.
El Paso's onshore future looks solid. With an average production weighted reserve to production ratio of 10 years, the company should be able to maintain high single-digit growth rates into the next decade. The E&P is forecasted to grow production between 8%-12% over the next three to four years. This, coupled with favorable oil and gas prices, should lead to higher margins and earnings growth and will offer investors continued strength in the near term.
Other potential upside will come from El Paso's exposure in Brazil. With nearly 870 Bcfe [billion cubic feet equivalent] of risked non-proved reserves, Brazil represents an avenue for growth that the market has not priced in.
On June 25, El Paso announced that it will move forward with its Ruby Pipeline project after receiving more than 1.1 Bcf/d of commitments from customers under long-term contracts. On June 23, Southern Natural Gas Company and Colorado Interstate Gas announced offers to purchase $189 MM and $100 MM of total outstanding debt, respectively.
Soliris the "Go-To" Drug for Alexion
The launch of Alexion Pharmaceuticals' (ALXN) genetic disorder drug Soliris in Australia and Japan in 2009, coupled with the drug's approval in one or more multiple rare blood disorders, should fuel future top-line growth. Additionally, lower cost of goods sold will provide bottom-line growth. However, with no other candidate in clinical development, we maintain our Hold rating on the stock.
Soliris is the only approved product for the treatment of Paroxysmal Nocturnal Hemoglobinuria (PNH), and we estimate peak sales for the drug in excess of $1 billion. The tremendous revenue potential is sufficient to drive a company of Alexion's size to strong probability. One problem which Alexion is struggling with at the moment is the lack of any pipeline products. The company suffered a major blow when
Proctor & Gamble (PG) terminated the commercialization and development agreement for its phase III candidate, pexelizumab.
We believe that Alexion's future is tied to Soliris. Long-term treatment with Soliris was also found to be associated with significant improvement and stabilization of kidney function. Data presented at the European Hematology Association in June demonstrated that Soliris therapy could result in significant improvement in fatigue in patients suffering from PNH, independent of any improvement in their anemia.
Alexion is investigating the potential of Soliris in a wide range of rare diseases and approval of Soliris for one or more of these indications will further the market potential of this blockbuster product. We arrive at our $80 target price by applying a price-to-sales ratio of 12.2x to our 2011 estimated total revenue of $578.8 million, discounted at 25 percent for three years.
