Okay, according to SGP, $1.25 billion of cost savings are to be acheived by the end of 2010 — and let’s GENEROUSLY assume that 40 percent of them are finished — and thus in the stock price, by the end of 2008:
$1.25 billion times .40 equals $500 million of savings, falling to the bottom line in 2008. There are about 1.62 billion SGP shares outstanding, so. . . .
$500 million, divided by 1.62 billion shares outstanding equals $0.3125 of NEW EPS power for 2008.
Now retain only 3/5th of the Vytorin profits for 2008 — figuring that the first quarter 2008 will have been the best; expect a cliff fall-off thereafter:
$1.1 billion times 2/5ths equals $440 million — the amount of lost profit in 2008, from fall-off in the J/V.
Divide $440 million over 1.62 billion shares. . . .
and SGP loses $0.2716 of 2008 EPS power from Vytorin crisis.
So — 27.16 cents “down”, netted against 31.25 cents “up” leaves us with net “increase” in 2008 SGP EPS of. . . .
about four pennies. 4 cents per share.
The low EPS estimate, before this announcement was $1.22 for 2008. Add $0.04, and you get to an EPS of $1.26.
A GENEROUS 12 times multiple of that 2008 SGP EPS leads to $15.12 of value ($1.26 times 12).
Yep — $15 looks about right for SGP.
Query: What if it is at a 8, or 10, times multiple?
[Is SGP really all that much better than PFE, ABT or MRK?]
Posted at 3-Apr-08 11:44 am
Additonal thoughts in that thread:
After last Sunday’s ACC, the Medical Malpractice Insurance Co.s are going to shortly tell (or have already told) doctors to keep up with “best-evolving practices” — after Sunday, and the ACC, any doctor who continues to use Vytorin as anything other than a drug of “last resort” — will do so at his or her peril. S/he will have little protection from medical malpractice lawsuits.
That is, if a patient dies of a heart attack, or has a cardiac event, on the doctor’s watch, the patient’s family will be able to truthfully say “my doctor did NOT comply with the latest, best practices for me”. . . . that alone — fear of malpractice — will drive a quick change-over.
Read what one Doctor said, right here:
“. . . .When the Enhance trial was released in 1/08 the drugs appear to offer no cardiovascular protection in the only trial that has been completed to date. I therefore stopped using the drug and because I was one of the biggest prescribers of these meds in my state I have been contacted by several of the regional managers of SGP and Merck and I have told them that I will no longer prescribe these meds util there is outcomes data to support their use. . . .”
I am not saying it is a GOOD way to deliver medicine, but I am saying that it is the way it will go — and soon.
Finally, recognize that even if I am wrong by over 20 percent, it still only adds another nickel to EPS in 2008.
Said another way, Fred Hassan needs to DOUBLE the size of the cuts, to be sure he turns it around, at SGP — and we know he can’t — there is no way SGP could continue to conduct its business advantageously, if it cut $3 billion.
So $15 is about it, for now.
4-Apr-08 11:08 am