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Friday, 31 March 2006
March 31, 2006 Kendle International (KNDL)
Hello Friends! Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice. As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisors prior to making any investment decisions based on information on this website.

I was looking through the list of top % gainers on the NASDAQ today and came across Kendle International (KNDL) a stock that I have been meaning to write-up on this blog but just haven't gotten around to it. I do not own any shares of this stock, but I purchased 30 shares of KNDL on 2/23/06 at $32.15 for my son, who if he is reading this entry, will see why I liked it then and why I still like it now. I do not have any options on this company either.

As I write, KNDL is trading at $33.20, up $2.04 or 6.55% on the day in an otherwise anemic market with both the DOW and the NASDAQ down moderately.

And what does this company do?

According to the Yahoo "Profile" on Kendle, the company is
"...a contract research organization, provides integrated clinical research services worldwide. The company’s services comprise clinical trial management, clinical data management, statistical analysis, medical writing, regulatory consultation, and organizational meeting management and publication services on a contract basis to the pharmaceutical and biotechnology industries."
And what about the latest quarterly result?

On February 14, 2006, KNDL reported 4th quarter 2005 results. Net service revenues for the quarter ended December 31, 2005, came in at $52.8 million, up 10% over net revenues of $48 million in the same quarter the prior year. Earnings per diluted share came in at $.25/share up 56% from $.16/diluted share the prior year. On the same day, the company raised earnings guidance for fiscal 2006 to $1.40 to $1.50/share up from expected $1.24, and a sharp increase from the $.88/share reported in 2005. This combined solid earnings report with raised guidance was enough to help the stock move higher!

How about longer-term?

Reviewing the Morningstar.com "5-Yr Restated" financials on KNDL, we can see a less than perfect, yet still provocative, financial record. Revenue has grown from $156.1 million in 2000 to $215.9 million in 2004 and $243.3 million in the trailing twelve months (TTM).

Earnings have been erratic, with $(.18)/share reported in 2000, turning profitable at $.33/share in 2001, then dropping to a large loss of $(4.30) in 2002. However, since 2002, earnings have improved, turning profitable again at $.27 in 2004, and coming in at $.66/share in the TTM. No dividends are reported and the number of shares has remained relatively stable at 12 million in 2000 increasing to 13 million in 2004 and up to 14 million in the TTM.

Free cash flow has been positive recently but a bit erratic as well with $20 million in 2002, dropping to $4 million in 2004, and increasing back to $19 million in the TTM.

The balance sheet looks solid with $36.1 million in cash per Morningstar and $66.4 million in other current assets. Balanced against current liabilities of $45.7 million, yields a current ratio of a bit over 2.0. In addition, the current assets can easily pay off both the $45.7 million in current liabilities and the $3.2 million in long-term liabilities combined more than 2x over!

What about some valuation numbers on this stock?

Reviewing the Yahoo "Key Statistics" on Kendle, we can see that this company is a small cap stock with a market capitalization of only $466.50 million. The trailing p/e is a bit rich at 43.66, but the forward (fye 31-Dec-07) p/e is much nicer at 19.30. No PEG is reported.

According to the Fidelity.com eResearch website, Kendle is in the "Drug Manufacturers/Other" industrial group and is very reasonably priced with a Price/Sales ratio of 1.8. Other stocks in this group include Vertex Pharmaceuticals with a Price/Sales ratio of 19.9, Millennium Pharmaceuticals with a ratio of 5.6, Forest Laboratories at 5.3 and Cephalon at 2.9. By this measure, the company appears reasonably priced.

Finishing up with Yahoo, we find that there are 14.13 million shares outstanding and 11.73 million that float. Of these, 115,550 shares are out short as of 3/10/06, representing 1% of the float or 0.5 trading days of volume (the short ratio). This doesn't look significant to me.

As previously noted, no dividends and no stock splits are reported on Yahoo.

So what about the chart?

Looking at a "Point & Figure" chart on Kendle from StockCharts.com:


We can see that the stock price traded weakly between September, 2002, when it was at $11.50/share, down to a low of $3.25 in March, 2003. Since then, the stock has been roaring higher to the current level of approximately $33/share.

So what do I think?

Well, you know I like it enough to buy a few shares for my son :). But seriously, the stock reported a strong quarter, raised guidance, and has a nice record from the past few years at least on Morningstar.com. The company is free cash flow positive, has reasonable valuation going forward especially, and a solid balance sheet. On top of this the chart looks terrific. Simply put, I like this stock!

Anyhow, that's my Friday pick! Thanks so much for stopping by and visiting. If you have any comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.

Bob


Posted by bobsadviceforstocks at 2:03 PM CST | Post Comment | Permalink

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