Taro Pharma: Monster Q4

Taro Pharma recently reported Q4 2011 numbers. With each quarter the operations get better and the true earnings potential is getting clear. The company reported EPS of $1.4. Based on an annualized rate, that is $5.6. Sun Pharma made an offer to acquire the company at $24.50 per share, a 4.4x P/E. Companies in this industry typically trade in the high teens range. The current market share is $34.85 per share. That is still cheap, a 6.2 P/E. With a public offer of $24.50 while the stock trading at almost $35, it is a clear indication from the market that the buyout is unlikely to happen at $24.50 offer. Infact, if you put a meaningful valuation of 15-18x P/E, you get a valuation in the $84-$100 range.

Even if you take the EPS of $4 for the 2011 year, putting a 15-18x P/E multiple gets you a $60-72 price target.

The company now has net cash of $214M, or $4.8 per share.

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