Scrips FY15 & FY16 Projections
Guts - It was validating to read your post on Sunday about the Atlanta-based compounding pharmacy hitting $4 million in monthly revenues from 7 states. It was also good to read that business is in the early stages of growth and has much more room to run. Scrips appears to be lining up to be a solid competitor in this space and it also has much room to run.
After I posted my FY14 projections, a few of my old $ATRS friends asked me to project SCRC numbers through 2018, just as I have been doing with $ATRS over the past couple years. (My FY14 projections complete with typos is here http://investorshangout.com/post/view?id=1528352.) Unfortunately, my crystal ball does not have enough power to see all the way to 2018, especially with the RapiMeds and Mini-McKesson businesses lying in wait. But I did take a stab at three sets of financial projections for FY15 and FY16. The first set is similar to my FY14 projections, which anticipates strong revenue growth from the speciality pharmacy business and lackluster growth from the other two businesses. My second set of projections is based on a much improved Mini-McKesson business (recall this business was the initial reason for my SCRC investment). The last set is based on what I will call, the "Grand Slam Method", which adds strong revenues from the sales of RapiMeds Children's Pain Reliever in China and Hong Kong (collectively referred to as "China RM sales"
.
Here are my the FY14 projection from last week's post: "$16,231,000 revenues, $11,130,300 gross profit, and $3,314,410 net cash profit resulting in $0.017 net cash profit per share." And here are my three sets of financial projections for 2015-16:
Method One (strong specialty pharmacy growth, tepid growth from other businesses)
FY15 :
Revenues - $42.4 million (161% increase over my FY14 projection)
Gross Profit - $30.1 million (270% increase)
EPS - $0.04 (135% increase)
FY16 :
Revenues - $67 million (58% increase over my FY15 projection)
Gross Profit - $47.5 million (58% increase)
EPS - $0.09 (125% increase)
Method Two (strong specialty pharmacy and mini-McKesson growth, tepid RM growth)
FY15 :
Revenues - $53.6 million (230% increase over my FY14 projection)
Gross Profit - $36.5 million (228% increase)
EPS - $0.058 (241% increase)
FY16 :
Revenues - $87.8 million (64% increase over my FY15 projection)
Gross Profit - $59.5 million (63% increase)
EPS - $0.125 (116% increase)
Method Three - Grand Slam (strong growth on all three business models)
FY15 :
Revenues - $80.5 million (396% increase over my FY14 projection)
Gross Profit - $49.65 million (346% increase)
EPS - $0.087 (412% increase)
FY16 :
Revenues - $142 million (76% increase over my FY15 projection)
Gross Profit - $86.2 million (74% increase)
EPS - $0.18 (107% increase)
Assumptions
Below are my assumptions for each set of financial projections.
Method One
FY15 : (1) specialty pharmacy incremental monthly revenue growth to $4 million by August, then flat the rest of the year (e.g., $2.25M in Jan., $2.5M in Feb, $2.75M in Mar., $3M in Apr., $3.25M in May, $3.5M in Jun., $3.75M in Jul., $4M in Aug.); (2) 70% gross margins for specialty pharmacy (reported gross margin in Q1 was 71%); (3) 50% sales commissions for speciality pharmacy; (4) $350K quarterly from the other two businesses, which I lazily carried through as the same amount from revenues to gross profit and ignored selling expenses; (5) $4 million for general and administrative, as well as other expenses (128% more than I projected for FY14); (6) 25% tax rate; (7) 215 million total outstanding shares.
FY16 : Same as FY15, except as follows: (1) specialty pharmacy incremental monthly revenue growth by $250K to $6 million by August, then flat the rest of the year; (2) 30% sales commissions for speciality pharmacy, which is still 10% above the industry norm; (3) $500K quarterly from the other two businesses; (4) $5 million for general and administrative, as well as other expenses; (6) 26.5% tax rate; (7) 225 million total outstanding shares.
Method Two
FY15 : Same as FY15 assumptions in Method One, except as follows (1) strong growth in the mini-McKesson business (MM) (i.e., $12 million FY15 revenues); (2) 60% gross margins on MM; (3) 20% sales commissions on MM; (4) continued tepid growth from RM (i.e., $150K quarterly), which I lazily carried through as the same amount from revenues to gross profit and ignored selling expenses.
FY16 : Same as FY16 assumptions in Method One, except as follows: (1) strong MM growth from FY15 Method Two continued (i.e., $22 million FY16 revenues, same gross margins and sales commissions as FY15 Method Two); (2) continued tepid growth from RM (i.e., $200K quarterly).
Grand Slam Method
FY15 : Same as FY15 assumptions in Method Two, except as follows (1) strong growth in RM China sales (i.e., $27.5 million FY15 revenues, which represents merely a quarter percent of the $11 billion Chinese pediatric OTC market); (2) 50% gross margins on RM China sales; (3) 15% selling expenses on RM China; (4) $5.5 million for general and administrative, as well as other expenses (I increased these expenses by 37.5% over the first two methods due to assumed added expenses related to the RM China business).
FY16 : Same as FY16 assumptions in Method One, except as follows: (1) strong RM China sales growth from FY15 "Grand Slam" Method continued (i.e., $55 million FY16 revenues, which represents a half percent of the target market, same gross margins and sales commissions as FY15)(note that I consistently give goose eggs to the other potential RM markets, including the U.S. and Canada, and I did not project any numbers for the other potential RM formulations the company intends to add); (2) $8 million for general and administrative, as well as other expenses.
Wrap Up
To summarize, based on varying levels of success with each Scrips business model, I have projected eps ranges from $0.04 to $0.087 for FY15 and $0.09 to $0.18 for FY16. No matter how we slice these projections, this triple-digit, annual earnings growth has the potential to deliver price-to-earnings multiples of 35 and much higher.
As a prior IBD investor, I have learned that PE multiples are meaningless to determine the stock price of companies with consecutive quarters of accelerated growth. Regardless, to serve as a guide for investors speculating how my eps projections might translate to a stock price, I ran stock screens using two services to determine current PE ratios for biopharma and healthcare companies with annual EPS growth of at least 50%. The stock screen revealed the following 27 companies ("Symbol - PE" : $ABC - 45.23, $ABMD - 125.3, $ACHC - 40.7, $ALXN - 92.9, $ANGO - 131.1, $ARTC - 120.3, $BIIB - 286.65, $BSTC - 37.61, $EBS - 44.57, $ENSG - 35.5, $EVHC - 1,120.5, $FRX - 146.72, $HMSY - 36.1, $HRTX - 36.41, $HSTM - 81.76, $ILMN - 99.53, $JAZZ - 36.88, $LCI - 65.24, $MDSO - 204.12, $MNK - 50.4, $MOH - 102.3, $NAII - 35.73, $NEO - 79.6, $PCYC - 54.02, $REGN - 73.92, $SLXP - 93.30, $VEEV - 130.21. Not surprisingly, PAWS did not make the list. I did not conduct an independent analysis into each company to determine differences and similarities to SCRC.
Excluding the lowest and highest PE ratios from my stock screens results in a PE range from 35.73 to 286.65 and an average of 91.46. Assuming my lowest eps projection for FY16 and the lowest PE of 35.73 results in a stock price of $3.22. As a longterm investor, this potential is sufficient for me to continue adding shares where possible and to exercise patience as this plays out over the next few years.
I reserve the right to amend my projections as the company provides more information to its shareholders on each of its three business models. Please conduct your own due diligence and do not make buy or sell decisions based on my posts. There are many risk factors identified in SCRC's financial reports that could negatively impact the assumptions on which I based my projections.
Best of luck!
Bsav88atty
Disclosure: I am long SCRC. Admittedly, I have a financial interest in a higher share price. I am a longterm investor who occasionally trades around a core investment, though my timing is rarely good. I have not been paid to write or post these projections, nor have I ever had an agreement to be paid to post about SCRC or any other stock. I am not a day trader or "flipper" of penny stocks trading on the OTCBB or pink sheets. Indeed, up until 2013, I had always invested in companies trading on the major exchanges. I post on the message boards to share my thoughts in an effort to contribute to a group of common investors and to further my understanding of a particular company and various investment philosophies.
Guts - It was validating to read your post on Sunday about the Atlanta-based compounding pharmacy hitting $4 million in monthly revenues from 7 states. It was also good to read that business is in the early stages of growth and has much more room to run. Scrips appears to be lining up to be a solid competitor in this space and it also has much room to run.
After I posted my FY14 projections, a few of my old $ATRS friends asked me to project SCRC numbers through 2018, just as I have been doing with $ATRS over the past couple years. (My FY14 projections complete with typos is here http://investorshangout.com/post/view?id=1528352.) Unfortunately, my crystal ball does not have enough power to see all the way to 2018, especially with the RapiMeds and Mini-McKesson businesses lying in wait. But I did take a stab at three sets of financial projections for FY15 and FY16. The first set is similar to my FY14 projections, which anticipates strong revenue growth from the speciality pharmacy business and lackluster growth from the other two businesses. My second set of projections is based on a much improved Mini-McKesson business (recall this business was the initial reason for my SCRC investment). The last set is based on what I will call, the "Grand Slam Method", which adds strong revenues from the sales of RapiMeds Children's Pain Reliever in China and Hong Kong (collectively referred to as "China RM sales"
. Here are my the FY14 projection from last week's post: "$16,231,000 revenues, $11,130,300 gross profit, and $3,314,410 net cash profit resulting in $0.017 net cash profit per share." And here are my three sets of financial projections for 2015-16:
Method One (strong specialty pharmacy growth, tepid growth from other businesses)
FY15 :
Revenues - $42.4 million (161% increase over my FY14 projection)
Gross Profit - $30.1 million (270% increase)
EPS - $0.04 (135% increase)
FY16 :
Revenues - $67 million (58% increase over my FY15 projection)
Gross Profit - $47.5 million (58% increase)
EPS - $0.09 (125% increase)
Method Two (strong specialty pharmacy and mini-McKesson growth, tepid RM growth)
FY15 :
Revenues - $53.6 million (230% increase over my FY14 projection)
Gross Profit - $36.5 million (228% increase)
EPS - $0.058 (241% increase)
FY16 :
Revenues - $87.8 million (64% increase over my FY15 projection)
Gross Profit - $59.5 million (63% increase)
EPS - $0.125 (116% increase)
Method Three - Grand Slam (strong growth on all three business models)
FY15 :
Revenues - $80.5 million (396% increase over my FY14 projection)
Gross Profit - $49.65 million (346% increase)
EPS - $0.087 (412% increase)
FY16 :
Revenues - $142 million (76% increase over my FY15 projection)
Gross Profit - $86.2 million (74% increase)
EPS - $0.18 (107% increase)
Assumptions
Below are my assumptions for each set of financial projections.
Method One
FY15 : (1) specialty pharmacy incremental monthly revenue growth to $4 million by August, then flat the rest of the year (e.g., $2.25M in Jan., $2.5M in Feb, $2.75M in Mar., $3M in Apr., $3.25M in May, $3.5M in Jun., $3.75M in Jul., $4M in Aug.); (2) 70% gross margins for specialty pharmacy (reported gross margin in Q1 was 71%); (3) 50% sales commissions for speciality pharmacy; (4) $350K quarterly from the other two businesses, which I lazily carried through as the same amount from revenues to gross profit and ignored selling expenses; (5) $4 million for general and administrative, as well as other expenses (128% more than I projected for FY14); (6) 25% tax rate; (7) 215 million total outstanding shares.
FY16 : Same as FY15, except as follows: (1) specialty pharmacy incremental monthly revenue growth by $250K to $6 million by August, then flat the rest of the year; (2) 30% sales commissions for speciality pharmacy, which is still 10% above the industry norm; (3) $500K quarterly from the other two businesses; (4) $5 million for general and administrative, as well as other expenses; (6) 26.5% tax rate; (7) 225 million total outstanding shares.
Method Two
FY15 : Same as FY15 assumptions in Method One, except as follows (1) strong growth in the mini-McKesson business (MM) (i.e., $12 million FY15 revenues); (2) 60% gross margins on MM; (3) 20% sales commissions on MM; (4) continued tepid growth from RM (i.e., $150K quarterly), which I lazily carried through as the same amount from revenues to gross profit and ignored selling expenses.
FY16 : Same as FY16 assumptions in Method One, except as follows: (1) strong MM growth from FY15 Method Two continued (i.e., $22 million FY16 revenues, same gross margins and sales commissions as FY15 Method Two); (2) continued tepid growth from RM (i.e., $200K quarterly).
Grand Slam Method
FY15 : Same as FY15 assumptions in Method Two, except as follows (1) strong growth in RM China sales (i.e., $27.5 million FY15 revenues, which represents merely a quarter percent of the $11 billion Chinese pediatric OTC market); (2) 50% gross margins on RM China sales; (3) 15% selling expenses on RM China; (4) $5.5 million for general and administrative, as well as other expenses (I increased these expenses by 37.5% over the first two methods due to assumed added expenses related to the RM China business).
FY16 : Same as FY16 assumptions in Method One, except as follows: (1) strong RM China sales growth from FY15 "Grand Slam" Method continued (i.e., $55 million FY16 revenues, which represents a half percent of the target market, same gross margins and sales commissions as FY15)(note that I consistently give goose eggs to the other potential RM markets, including the U.S. and Canada, and I did not project any numbers for the other potential RM formulations the company intends to add); (2) $8 million for general and administrative, as well as other expenses.
Wrap Up
To summarize, based on varying levels of success with each Scrips business model, I have projected eps ranges from $0.04 to $0.087 for FY15 and $0.09 to $0.18 for FY16. No matter how we slice these projections, this triple-digit, annual earnings growth has the potential to deliver price-to-earnings multiples of 35 and much higher.
As a prior IBD investor, I have learned that PE multiples are meaningless to determine the stock price of companies with consecutive quarters of accelerated growth. Regardless, to serve as a guide for investors speculating how my eps projections might translate to a stock price, I ran stock screens using two services to determine current PE ratios for biopharma and healthcare companies with annual EPS growth of at least 50%. The stock screen revealed the following 27 companies ("Symbol - PE"
: $ABC - 45.23, $ABMD - 125.3, $ACHC - 40.7, $ALXN - 92.9, $ANGO - 131.1, $ARTC - 120.3, $BIIB - 286.65, $BSTC - 37.61, $EBS - 44.57, $ENSG - 35.5, $EVHC - 1,120.5, $FRX - 146.72, $HMSY - 36.1, $HRTX - 36.41, $HSTM - 81.76, $ILMN - 99.53, $JAZZ - 36.88, $LCI - 65.24, $MDSO - 204.12, $MNK - 50.4, $MOH - 102.3, $NAII - 35.73, $NEO - 79.6, $PCYC - 54.02, $REGN - 73.92, $SLXP - 93.30, $VEEV - 130.21. Not surprisingly, PAWS did not make the list. I did not conduct an independent analysis into each company to determine differences and similarities to SCRC. Excluding the lowest and highest PE ratios from my stock screens results in a PE range from 35.73 to 286.65 and an average of 91.46. Assuming my lowest eps projection for FY16 and the lowest PE of 35.73 results in a stock price of $3.22. As a longterm investor, this potential is sufficient for me to continue adding shares where possible and to exercise patience as this plays out over the next few years.
I reserve the right to amend my projections as the company provides more information to its shareholders on each of its three business models. Please conduct your own due diligence and do not make buy or sell decisions based on my posts. There are many risk factors identified in SCRC's financial reports that could negatively impact the assumptions on which I based my projections.
Best of luck!
Bsav88atty
Disclosure: I am long SCRC. Admittedly, I have a financial interest in a higher share price. I am a longterm investor who occasionally trades around a core investment, though my timing is rarely good. I have not been paid to write or post these projections, nor have I ever had an agreement to be paid to post about SCRC or any other stock. I am not a day trader or "flipper" of penny stocks trading on the OTCBB or pink sheets. Indeed, up until 2013, I had always invested in companies trading on the major exchanges. I post on the message boards to share my thoughts in an effort to contribute to a group of common investors and to further my understanding of a particular company and various investment philosophies.
