Based on its first quarter performance and increased guidance, we are upgrading Watson Pharmaceuticals (WPI) to Outperform. The copmany posted first-quarter 2011 earnings of $0.89 per share, beating the Zacks Consensus Estimate by $0.03 and the year-ago earnings by $0.08 per share. Revenues increased 2% to $876.5 million, mainly driven by higher generics sales.
Watson Pharma increased its 2011 earning guidance range to $3.95 – $4.20 per share from $3.85 – $4.15 per share. Following the earnings announcement, we raised our 2011 earnings estimate by 14 cents to $4.29 per share.
We believe that the company's cost saving initiatives and new product launches, both branded and generic, will help drive growth. Our target price of $82 is based on 19.1x our 2011 EPS estimate.
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