Life-Sustaining Products for Women: United Therapeutics (UTHR)

The company’s primary drug has three delivery methods that are used in the U.S. and Europe. The company plans to continue to expand the drug’s market in Europe and to Asia.

The company has been well managed, with substantial earnings growth, cash generation, and effective capital deployment. Its return on invested capital is 21%, well above average. Operating earnings growth over the past three years has been 50% annualized, and forecasts for 2014 and 2015 are for growth of 33% and 12%.

The company’s financial condition is excellent. Cash exceeds outstanding debt, and UTHR is generating strong cash flow that exceeds the company’s normal requirements. Capital management has also been excellent. UTHR’s management has repurchased one million shares at an average cost of $47 (less than 1/2 the current share price). Given the stock’s 84% gain over the past year, management has suspended share repurchases.

Despite the company’s success, the stock price reflects guarded expectations. The stock sells at a discount to the broad market and a 25% discount to the health care sector. The relatively low valuation likely reflects the company’s reliance on a single set of drugs and a small targeted market.

Our near-term target price for UTHR is $117, or 15% above the current price. The risk level is above average, however.

Sustainability Profile

United Therapeutics is appealing as a female-headed company providing life-sustaining products for young women. Other than that, the company discloses virtually nothing about its sustainability policies, a trait unfortunately shared by many small companies. Credit is due for producing what may be the coolest annual report ever in the style of the children’s classic Goodnight Moon, but even the company named the 12th-best small company in 2012 by Forbes owes its stakeholders better transparency on its environmental and social impacts.

UTHR’s Revivicor subsidiary was acquired in 2011 to develop engineered lungs and lung tissue for patients suffering from PAH and other lung diseases. (The only cure for PAH is a lung transplant.) Because this product line would stem from xenotransplantation —  the transfer of tissue or organs from animals, in this case genetically modified — UTHR will not be appropriate for clients whose investment criteria precludes all animal testing.

 

Revenues: $1.1 billion
Earnings Per Share (EPS):
2014E  $7.20
2015E  $8.06

Projected 3–5-Year Annual Earnings Growth: 10%a
Dividend Yield: 0%
52-Week Low – High: $55.89 – $116.65

Risk: Above average

Website: www.Unither.com