With the economy looking like it is heading towards recession in 2023, reliable growth names with reasonable valuations are in short supply in the current market.
One name that fits that bill is a biopharma company I have not discussed in a while. The company sports a forward earnings ratio in the low teens with profits expected to jump noticeably in the coming year.
Let's revisit it as a covered call trade opportunity.
ANI Pharmaceuticals (ANIP) is a roughly $650 million market cap specialty pharmaceutical company focused on the development and marketing of generic and branded drugs with niche or high barrier to entry characteristics. The Minnesota-based company's product portfolio consists of approximately 85 generic products and 15 branded drugs.
ANI's revenues should be up just over 40% in 2022 to at least $300 million. The recent launch of Cortrophin Gel has been a key growth driver for the company this year and should deliver $40 million to $45 million in sales in 2022, which is up about $5 million from previous guidance. Cortrophin Gel sales rose to $12.6 million in the third quarter, up more than 20% sequentially from the $10.2 million in the second quarter. This product is rapidly gaining market share in an approximately $600 million annual market.
Management is in the process of consolidating some of its manufacturing facilities, which should deliver $7 million to $8 million worth of annual cost savings when completed. This is one reason earnings per share are projected to jump markedly in 2023 even as sales growth is expected to level out in the mid-teens next year. Analyst estimates for earnings are in a range of roughly $2.50 to $3.25 a share for 2023. For comparison, ANI is tracking towards just over $1.35 in EPS this year.
The company is growing by launching new products and by acquiring niche products on the cheap. ANI has averaged 2-4 small deals on an annual basis over the past decade. EBITDA has jumped from $4.3 million in Q1 to $9.9 million in Q2 to $19.6 million in the third quarter of 2022. The company's balance sheet is also in good shape, with no major debt maturities until 2027.
Option Strategy for ANI
This is how one can execute a covered call position in ANIP. Remember, covered call orders involve buying an equity and simultaneously selling just out of the money call strikes against the new position.
Using the July $40 call strikes, fashion a covered call order with a net debit in the $33.00 to $33.50 range (net stock price - option premium). This strategy provides downside protection of 16% and potential upside of 20% over the eight-month option duration even if the stock does nothing from current trading levels.
