Citi Reiterates Buy on Watson Pharmaceuticals, Raises PT to $72

Citi reiterated its Buy rating on Watson Pharmaceuticals WPI. At the same time, Citi raised its price target on the stock from $66 to $72. In a research report published today, Citi stressed it feels confident Watson's acquisition of Specifar Pharma will create additional value for the company in the future. In the report, Citi states, "WPI acquired privately-held Specifar Pharma for €400M ($562M) in cash & €12.5M ($17.5M) in assumed debt, with an earn-out of up to €40M tied to generic Nexium [esomeprazole] sales. The deal makes strategic & financial sense to us, with the price (ex-earn-out) representing~4.9x EV /2010 sales of €80M (Fig. 1 for Comparable Generic Transactions). We see the Street as materially underestimating the level of accretion from Specifar's substantially higher margin business model that complements WPI's ex-US Arrow business. We reiterate our Buy & cut our risk rating to Medium from High. We raise our price target to $72 from $67, which assumes WPI trades at 12.8x our ‘12E EPS vs. its 10-year forward median P/E multiple of 16x." On Wednesday, Watson added 0.58% to its value to finish the day at $62.20. Its shares continued their winning streak in today's pre-market trading, rising 0.19% to $62.32.