Selloff on Merus Labs is overdone, says Laurentian Bank Securities

Ahead of Merus Labs’ (TSX:MSL) Q1, 2017 results, Laurentian Bank Securities analyst Joseph Walewicz thinks the long decline in the company’s stock has become overdone.

Next week, Merus is expected to report its Q1, 2017 results. Walewicz thinks the company will report EBITDA of $9.8-million on revenue of $29.1-million. The analyst says negative sentiment on the stock currently reigns, but he is expecting some relative positives.

“Given the weak F2017 guidance provided in December, and the related stock sell off, investor expectations for the quarter are low,” says Walewicz. “Despite this, we expect top and bottom line growth driven by the UCB and Sanofi products (acquired in Q2/F16), only slightly offset by a contraction in Emselex (pricing in Germany). We should see continued pressure on margins due to elevated COGS (pending Sintrom tech transfer) and higher Opex (elevated until H2/F17). Note that F/X moves could be a very slight headwind – key currency (Euro) depreciation was small (<2%), and while the GBP was very weak it is a small % of total revenue." In a research update to clients today, Walewicz maintained his "Buy" rating and one-year price target of $1.65 on Merus Labs, implying a return of 57.1 per cent at the time of publication. Walewicz thinks Merus Labs will post Adjusted EBITDA of $44.37-million on revenue of $115.2-million in fiscal 2017. He expects fiscal 2018 numbers will show EBITDA of $49.91-million on a topline of $111.43-million.