Concordia: long term investors to be rewardedThis is a great article just out today on seekingalpha.com. Don't let the shorters get you down with this stock - CXR is a great long-term investment with short-term volitily.
Summary
Concordia share price has been under pressure due to industry-wide challenges, high leverage and Brexit concerns.
Under various scenarios, Concordia continues to deleverage with no medium-term risk of bankruptcy.
DCF and LBO analysis shows satisfactory returns and significant upside potential for CXR.
CXR sees limited near-term catalyst. Only strong results in the next couple quarters will restore investor confidence.
To invest in CXR, you need to have long-term investment horizon and believe in the stability of underlying cash flows.
Conclusion
Think of CXR as an LBO that is publicly traded. P/E firms might not want to invest because their normal maneuvers are already deployed in this case. There is no bankruptcy risk here, and deleveraging is still optimistic even under extremely conservative assumptions. IRR is satisfactory at ~20% even under conservative assumptions, with potential upside from pound strengthening and revenue growth. My analysis above assumes 65% margin at AMCo, even though management guided at 70%, which provides another important potential lever.
Risk factors for CXR includes any unpredictable changes to its market and product, including competitive landscape, that could severely harm the cash flows. It's premature to price in Brexit impact given it's early stage and underlying healthcare market is relatively sheltered from market swings. Pound movements are significant, but limited in its impact shown above in various sensitivities.
The missing piece in this analysis is that I am not an expert in the off-patent drug business and have limited visibility into CXR's product portfolios. This articles assess CXR purely from a financial perspective using simplified growth assumptions.
Bottom line is that if CXR maintains its normal course of business with moderate to none growth rate among its portfolio of drugs and pound sink further to 1.2 territory, time will reward those that establish a position early and hold 2-3 years, much like investing from a private equity perspective.
Concordia: An LBO That Trades Publicly?
Full article:
https://seekingalpha.com/article/3987473-concordia-lbo-trades-publicly