Valuation and Business Analysis of Opko Health - Essay Example

OPKO HEALTH Opko Health Inc. is a pharmaceutical and diagnostics organization that is geared to serve highand large markets across America and beyond. The company is at the forefront in developing new platforms for the diagnosis and treatment of cancer and the neurodegenerative ailments. Indeed, Opko benefits much from the booming pharmaceutical business across the world and the increasing demand for its supplies. Presently, the organization boasts of a very strong performance but the opportunities promise even better times ahead.

The cash and cash equivalents plus the marketable securities gave a total asset base of $87 million as at the end of 2011. The performance of Opko at the NYSE and its general financial outlook is a relatively sure indication on the financial strength and viability of the organization. The present figures indicate that Opko is in a very liquid shape with total liabilities being less than the total cash. The resulting net cash per share is $0.01 which translates to very investor-friendly position for the organization.

The simplest connotation is that in the event of buying Opko shares today, an investor really pays $4.86 (given a share price of $4.87) given that $0.01 is already incorporated into the current share price. Such a liquidity level is a very healthy position for the company. It simply means that Opko can weather the storm even in the face of any economic or financial crisis and is assured of the possibility of a stock buyback in the market. It must be stressed that the fortunes of Opko have greatly been growing over the last 10 years perhaps as a result of the high profit retention.

For financial strength and sustainability, a company should always be in a position to demonstrate a rising trend in the earnings especially for the most current and recent financial quarters. An analysis of the results of Opko indicates EPS figures of $0.01 and $0.03 from the earliest to the most recent. This increasing trend confirms that the company passes the EPS test and any investor should have the justification to make a decision on Opko. An analysis of the performance of Opko at the NYSE shows that the share price of the company has had a steady rise since early 2011.

The steady increase in the share price is attributed to several factors chief amongst them being the current state of the pharmaceutical industry in the world and the new dimensions that Opko has taken in a bid to win the market. Research in cancer diagnosis and the subsequent modernization of its instrumentation wing has boosted the demand for the company’s products across the world. These measures directly influence the performance of the company in the exchange. Such market developments are likely to increase in the face of the growing health concerns across the world.

This directly translates into a brighter future for Opko’s shares. Investors should therefore be least worried on the financial strength of the organization. At least the performance of the company in the recent past can speak volumes about the future. A recent report from the U.S Medical Devices Index indicates that the booming medical equipment and supplies industry has made the stocks for the players in the industry perform exemplarily in the recent past. In the three months that ended in March 2011, the revenues for Opko Health increased by 9% to $8.6 million. On the same note, the net loss increased by 19% to $6.3 million. The revenues translate into more income from the product sales and the availability of other sources of revenue.

The higher loss on the other hand, reflects the increase in sales, the cost of goods sold and the increase research and development costs. The results of the year ended 2011 reveal a lot about the company’s performance and a good boost to the prospects of the business. The total revenue for the year ended Dec.31st 2011 was $27.8 million in comparison to a figure of $21.8 million in 2010. This increase in revenue is mostly associated with the improving industry trends and the additional revenue associated with the recent acquisition of PharmaGenexx (2012).

The instrumentation segment has been performing well with increased sales across the world. This trend is most likely to improve given the less vigorous market dynamics compared to the recent past. The steady trend has also been seen in the gross margin of the company from a figure of $ 2.3million in 2010 to $2.8 million in 2011. The increase in the gross margin is a factor that can lure potential investors to consider Opko as an option for investment. The increase in gross margin is primarily associated with the increased margin which came from the acquisition of Chilean and Mexican branches of the company.

In the same vein, it has been realized that the selling, administrative and general expenses for the three months that ended in September 2011 came to $4.3 million. This is in comparison to a figure of $4.4 million in 2010 (2012). The increase in the expenses is mainly associated with increase in professional and employee expenses which were partly offset by reduced equity based compensation. At a share price of $ 4.87, it basically implies that the shares of Opko Health are undervalued. This valuation can be confirmed from the general trend in the market which actually shows signs of improvement in the near future.

On keen perusal of the financial statements of the company, very fundamental realities emerge. The research and development activities in the company are budgeted to increase over the next several years. For such an industry, R&D is certainly the prop of the company and the increase certainly spells great prospects for the company. The current share price is likely to increase steadily over the next years. Given the recent acquisition of Opko in Chile, the credit base for the company increased.

Opko operates in a typical pharmaceutical industry and engages in several segments across different industries. For investors, this offers good grounds for the diversification of risks and opportunities in the dynamic market. The diverse portfolio has made many analysts to consider a share price target of $8 from the current $4.87 (2012). Given the trend the share price has experienced in the NYSE, it could comfortably be stated that there is much certainty that the trend would increase in the coming period.

Whichever the case, investors should not be worried about any unlikely event that could bring a fall in the share price. The upcoming catalysts that are likely to improve the share price are almost inevitable and this translates into better times. In sum, it can be stated that Opko is in very able financial shape currently and there are prospects for any aspiring investors to consider making a try in the shares of the organization. Such an investment is likely to be worth the consideration. Reference Opko Health Inc.

- Company Profile - BioCentury. (n.d.). BioCentury. Retrieved March 25, 2012, from http://www.biocentury.com/companies/opko_health_inc