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Buy Merus Labs on weakness, says Laurentian

Merus Labs

Merus Labs Merus Labs’ (Merus Labs Stock Quote, Chart, News: TSX:MSL) third quarter wasn’t exactly full steam ahead, but Laurentian Bank Securities analyst Joseph Walewicz thinks investors should use any potential weakness in the stock to add to their positions.

This morning, Merus Labs reported its Q3, 2016 results. The company lost $5.1-million on revenue of $25.7-million, a topline that was up from just $9.5-million in the same period last year.

“We are pleased with our business performance, with overall sales volumes tracking above expectations,” said CEO Barry Fishman. “Our accelerated focus on growth products has gained momentum, with several interesting possibilities to leverage our 36-country platform and create future organic growth.”

Walewicz says the results were a mixed bag, with revenues beating his estimates, but expenses running higher amid some weaker guidance.

“Fiscal Q3/16 revenues of $25.7M, up 170% YoY, were ahead of our forecast,” notes the analyst. “Emselex outperformed expectations, as increased volume offset the price decline in Germany. Sintrom also outperformed expectations, but this relates to stocking at the wholesaler level and ordering patterns should return to normal levels in FQ4/16. The rest of the portfolio also performed at or near expectations, with notable outperformance for the recently acquired Sanofi portfolio ($2.4M vs. our $1.4M forecast), and Estraderm was lower than expected ($0.25M vs. our $1M forecast).”

Walewicz points out that Merus now expects fiscal 2016 Adjusted EBITDA to be between $43-46-million, down from the previous estimates of between $47-50-million, below both his and consensus forecasts. Despite this, the analyst still thinks the stock is undervalued.

“We would use any share weakness as an opportunity to build a position in advance of improved margins and continued deleveraging in F2017,” says Walewicz.

In a research update to clients today, maintained his “Buy” rating and one-year target of $3.50 on Merus Labs.

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About The Author /

Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.

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