Healthcare Business

Analyst's Top 4 Specialty Pharmaceutical Stocks to Buy Before Earnings

While most of the top stocks in the S&P 500 are winding up the third-quarter reporting season, the specialty pharmaceutical stocks are ready to come from the on-deck circle and step up to the plate. The earnings for many of these top stocks will begin next week. In a new research note, the analysts at Piper Jaffray are very positive on four top stocks in the firm’s coverage universe, and they see the potential for a strong fourth-quarter rally in shares.

Specialty pharmaceutical companies tend to have more dependable earnings than biotech and better growth potential than the uber large-cap pharmaceutical giants. Here are the four stocks highlighted by the Piper Jaffray team that may be very timely purchases ahead of next week. All are rated Overweight.

Actavis PLC (NYSE: ACT) is a top generic-drug maker that continues to see unprecedented growth. In fact, despite all the recent merger chatter, the Piper Jaffray analysts feel the company’s strong organic growth has been overlooked. A key element to that growth has been the so-called patent cliff, a period when many of the world’s best-selling drugs are losing patent protection. Some analysts on Wall Street think this Irish-domiciled company could have earnings per share as high as $20 by 2017.

The Piper Jaffray price target for the stock is $280. The Thomson/First Call consensus target is $268.14, and shares closed Tuesday at $239.03.

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Endo Health Solutions Inc. (NASDAQ: ENDP) develops, manufactures, markets and distributes quality branded pharmaceutical, generic and device products through its operating companies. Piper Jaffray believes that retail volumes for top-selling drug Qualitest grew by 15% year-over year in the third quarter. They also think that a strong third-quarter earnings report should make Wall Street and investors feel better about the overall trajectory of the broader generics business at the company.

The Piper Jaffray price objective is set at $84, and the consensus target is $76.60. Shares closed trading on Tuesday at $66.58.

Jazz Pharmaceuticals PLC (NASDAQ: JAZZ) is a specialty biopharmaceutical company that identifies, develops and commercializes pharmaceutical products. Analysts expect adjusted earnings for 2014 in the range of $8.00 to $8.25 per share, and the Piper Jaffray team thinks that number could go higher. Strong earnings projections are one reason many on Wall Street see the stock as a potential takeover target. The analysts also feel that double-digit volume growth for Xyrem is very realistic, given that penetration into the broader narcolepsy patient population is rather small.

Piper Jaffray has a $208 price target, while the consensus target is $184.33. The stock closed trading on Tuesday at $168.35.

Salix Pharmaceuticals Ltd. (NASDAQ: SLXP) develops and markets prescription pharmaceutical products and medical devices for the prevention and treatment of gastrointestinal diseases. Salix’s strategy is to in-license late-stage or marketed proprietary therapeutic products, complete any required development and regulatory submission of these products, and commercialize them through the company’s 500-member specialty sales. Many firms we cover think that Salix is a takeover target for Allergan, but Piper Jaffray believes that the standalone ability of the company and the strong organic growth have the potential for strong value creation for shareholders.

Piper Jaffray has a $189 price objective for the stock, and the consensus figure is much lower at $169.06. The stock closed on Tuesday at $139.94.

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With an earnings tailwind possibly set up for these top stocks to buy, aggressive investors may want to hop in and put on at least partial positions in front of next week’s releases.