Overweight Sun Pharma on earnings momentum: Morgan Stanley

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Published: April 7, 2015 12:15:10 AM

Sun is preparing for the transition to the next level – specialty business; meanwhile, it continues to expand...

Sun is preparing for the transition to the next level – specialty business; meanwhile, it continues to expand its global generics business – US and EM.

We estimate 24.6% CAGR for F16-F17, vs. 18.6% for the Street. Our new F17 EPS estimate of R47.7 is 13.4% ahead of consensus. The most notable earnings driver is gGleevec after 180 days exclusivity; we project that Sun can gross $200 million revenues p.a. gNexium and HCQS are possibilities from the Ranbaxy pipeline. Plus, SPARC’s pipeline – Elepsia XR and latanoprost – may provide good upside. We project $50-150 million revenue potential each, based on high pricing flexibility while keeping a big discount to brand.

We believe that a mid-20s P/E multiple can be sustained: We cite strengthening longer-term growth visibility – complex injectables, specialty products and $1.8 billion cash.

We reiterate Overweight rating on the stock due to an array of positives. Earnings momentum is underappreciated by the Street. On the high base of FY15, we estimate 24.6% CAGR for the next two years (F16-17e) for Sun’s earnings, versus the consensus forecast of 18.6%.

We see multiple drivers of earnings. They include a top-quality domestic business, sustainability of Taro pricing,  multiple new drug opportunities for the US market and RoW business.

In particular, we highlight the gGleevec opportunity for the US beyond 180 days exclusivity.

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