5/5/2012
Hi-Tech Pharmacal Co Inc (NASDAQ:HITK)
Hi-Tech Pharmacal Co. makes & markets prescription & over the counter drugs and nutritional products. It's product line doesn't really impress me, but that's probably why I haven't heard of this company before. What I do like is that it's a Generic pharma company, and if it can get it's marketing right the fact that it's products are identical to everyone else's won't much matter, it's worked in some measure for Abbot Labs, and certainly for Pfizer who has done a great job of making people think it's identical products are better or different from other companies completely identical products. It's like if I bought a bunch of Coke, slapped "Johann's Soda!" label on it and sold it for more than retail. In fact I've had people tell me that Advil is different than ibuprofen, educated medical professionals no less (which is both absurd and patently false). But such theatrical differentiation hasn't really worked for Bayer or Johnson & Johnson, though we all know of their attempts so the ROI on that is arguable. It's kinda worked for AstraZeneca, and Roche while it was price fixing. This makes generic pharmaceuticals seem very much like a commodity to me, and I hate companies whose principle products are essentially commodities as profits will almost always take a back seat, growth is challenging, and no edge really exists. When your only advantage is that you spent 500 million on a factory to me that's 500 million you're just waiting to lose, almost as good as flushed.
Price at write up $32.47
Valuation Ratios
Price/Earnings (TTM) . . . . .8.4x
Price/Sales (TTM) . . . . . . . 1.92x
Price/Book (MRQ) . . . . . . . 1.91x
Price/Cash Flow (TTM) . . . . 12.87
Held by institutions . . . . . .63.45%
MarketCap 423.4M
Benjamim . . . . . . . . . 4.2/5: Target 44 earnings growth is less than the competition, no dividend, but strong financials and increase in stockholder's equity.
Saxon . . . . . . . . . . . 3.3/5: Decent if you own it, possibly a buying opportunity.
Davison . . . . . . . . . 3/5: You absolutely should have picked this up in 2009 knowing what we know now.
Thomas . . . . . . . . . 3/5: Market perform. Excellent operating earnings yield, with recently declined price might indicate a buying opportunity, but it's reported lower than expected results.
Marcel . . . . . . . . . .2/5: Hold current shorts, the market is accumulating shares, but this isn't a buy trade.
Insiders: No activity
Lets start with labeling, because this product is identical to it's competition it's real product is labeling, and nothing about it's labeling makes me feel safe, certain I'm getting a high quality product, or special in anyway. It does make me feel like I'm getting a generic product, possibly from China. But it is consistent across the adult range which is a huge plus brand wise, not at good as Kellogs or Post, but handy. Still whatever branding balance is needed to differentiate product lines from the same manufacturer while still maintaining a brand identity isn't quite here.
Nothing can really change the facts of commodities however, HI-Tech doesn't have any special products, can only nab products with expired patents and sell them cheaper than other generic pharma companies, Pfizer they are not. I would offer that as a fundamental flaw in their revenue stream, and why they've shown such a deceleration growth rates. There's simply a competitive ceiling that defiantly limits them despite any alternate approaches they may attempt (which definitely limits them as well).
Still, it's possibly trading at a real discount. My current expected price for this stock would be 35.50, so strictly speaking it's trading at a slight discount. I wouldn't expect it to trade any lower than 27.5 from a historical perspective also based on EPS. It does slightly concern me that they aren't issuing more debt in the current interest rate environment. There's issued stock too, but it was issued as exercised options. The price has declined 20% in the past 60 days, so what does that say about timing? It's a little sketchy to me, and with growth only coming from patent expiration and improvements in coverage. I wouldn't initiate more than a 1.5% stake, and if you were to do it I'd consider 0.25% increments and buy around 28 to not more than 31 to give yourself a cushion on volatility. Mostly this just feels like a missed boat, I'm happy to let it sail just like a Hard drive manufacturing company. Sure, they've done well thus far, and they look pretty cheep now but the next competitor is coming and that's not good for anyone. Plus, if the market is contracting there are better opportunities out there. In May they go away right? Why roll the dice on a company like this?
Due dilligence OPTR, AVNR, PCRX (but they're pretty much rot)
Hi-Tech Pharmacal Co Inc (NASDAQ:HITK)
Hi-Tech Pharmacal Co. makes & markets prescription & over the counter drugs and nutritional products. It's product line doesn't really impress me, but that's probably why I haven't heard of this company before. What I do like is that it's a Generic pharma company, and if it can get it's marketing right the fact that it's products are identical to everyone else's won't much matter, it's worked in some measure for Abbot Labs, and certainly for Pfizer who has done a great job of making people think it's identical products are better or different from other companies completely identical products. It's like if I bought a bunch of Coke, slapped "Johann's Soda!" label on it and sold it for more than retail. In fact I've had people tell me that Advil is different than ibuprofen, educated medical professionals no less (which is both absurd and patently false). But such theatrical differentiation hasn't really worked for Bayer or Johnson & Johnson, though we all know of their attempts so the ROI on that is arguable. It's kinda worked for AstraZeneca, and Roche while it was price fixing. This makes generic pharmaceuticals seem very much like a commodity to me, and I hate companies whose principle products are essentially commodities as profits will almost always take a back seat, growth is challenging, and no edge really exists. When your only advantage is that you spent 500 million on a factory to me that's 500 million you're just waiting to lose, almost as good as flushed.
Price at write up $32.47
Valuation Ratios
Price/Earnings (TTM) . . . . .8.4x
Price/Sales (TTM) . . . . . . . 1.92x
Price/Book (MRQ) . . . . . . . 1.91x
Price/Cash Flow (TTM) . . . . 12.87
Held by institutions . . . . . .63.45%
MarketCap 423.4M
Benjamim . . . . . . . . . 4.2/5: Target 44 earnings growth is less than the competition, no dividend, but strong financials and increase in stockholder's equity.
Saxon . . . . . . . . . . . 3.3/5: Decent if you own it, possibly a buying opportunity.
Davison . . . . . . . . . 3/5: You absolutely should have picked this up in 2009 knowing what we know now.
Thomas . . . . . . . . . 3/5: Market perform. Excellent operating earnings yield, with recently declined price might indicate a buying opportunity, but it's reported lower than expected results.
Marcel . . . . . . . . . .2/5: Hold current shorts, the market is accumulating shares, but this isn't a buy trade.
Insiders: No activity
Lets start with labeling, because this product is identical to it's competition it's real product is labeling, and nothing about it's labeling makes me feel safe, certain I'm getting a high quality product, or special in anyway. It does make me feel like I'm getting a generic product, possibly from China. But it is consistent across the adult range which is a huge plus brand wise, not at good as Kellogs or Post, but handy. Still whatever branding balance is needed to differentiate product lines from the same manufacturer while still maintaining a brand identity isn't quite here.
Nothing can really change the facts of commodities however, HI-Tech doesn't have any special products, can only nab products with expired patents and sell them cheaper than other generic pharma companies, Pfizer they are not. I would offer that as a fundamental flaw in their revenue stream, and why they've shown such a deceleration growth rates. There's simply a competitive ceiling that defiantly limits them despite any alternate approaches they may attempt (which definitely limits them as well).
Still, it's possibly trading at a real discount. My current expected price for this stock would be 35.50, so strictly speaking it's trading at a slight discount. I wouldn't expect it to trade any lower than 27.5 from a historical perspective also based on EPS. It does slightly concern me that they aren't issuing more debt in the current interest rate environment. There's issued stock too, but it was issued as exercised options. The price has declined 20% in the past 60 days, so what does that say about timing? It's a little sketchy to me, and with growth only coming from patent expiration and improvements in coverage. I wouldn't initiate more than a 1.5% stake, and if you were to do it I'd consider 0.25% increments and buy around 28 to not more than 31 to give yourself a cushion on volatility. Mostly this just feels like a missed boat, I'm happy to let it sail just like a Hard drive manufacturing company. Sure, they've done well thus far, and they look pretty cheep now but the next competitor is coming and that's not good for anyone. Plus, if the market is contracting there are better opportunities out there. In May they go away right? Why roll the dice on a company like this?
Due dilligence OPTR, AVNR, PCRX (but they're pretty much rot)