Israel Stock Ideas

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Enzymotec -- >>> Zacks' Bull Of The Day Enzymotec



Mar. 14, 2014



http://seekingalpha.com/article/2089943-zacks-bull-of-the-day-enzymotec?source=yahoo




Enzymotec (ENZY) -- pronounced "Enzyme-o-tec" -- is a nutritional ingredients and medical foods company focused on bio-functional lipid-based compounds. Areas of focus include infant nutrition and Omega-3 fatty acid supplements.

Founded in Israel in 1998, the $600 million company's products are marketed to global consumer companies in 30 countries. Besides their core products, Enzymotec also maintains a strong clinical trial portfolio and is pursuing medical foods opportunities through the leveraging of its lipids-related capabilities.


ENZY went public last fall and just closed a 5.4 million secondary share offering last week that was mostly soaked up by two hedge funds, Paulson & Co. and Visium Asset Management.

Analysts were raising estimates and price targets after the company's strong Q4 report in February, which beat EPS expectations by 67%. Becoming a Zacks #1 Rank, the shares then rallied up to $29.75 but sold off on the secondary offering, which was priced at $28.

Early Stage Growth

According to analysts at Wedbush, "Enzymotec, with its proprietary technology in lipids and expanding global distribution platform, will continue to gain market share within three fast-growing industry segments of nutritional foods & supplements: krill oil, infant nutrition, and medical foods."

They believe that given the company's high growth prospects, ENZY should trade at a 20% premium to its peer group average on a PEG ratio basis. "This translates to a 1.6x 2014 PEG ratio, thus generating our 12-month price target of $33."

Expertise = Target

I bought shares of Enzymotec recently for the Follow The Money Portfolio after I saw those two hedge funds pick up over 5 million shares between them.

I also thought it was an attractive growth opportunity in health-focused foods. With their proprietary R&D in lipids and expanding global customer base, I see ENZY as a potentially attractive take-over target for large pharmaceutical or nutrition product companies.

As always, this kind of speculation is just that and isn't sufficient to build an investment thesis around. But when valuing a company, institutional investors often model not just a future stream of cash flows, but also "what will the other guy pay to own that stream or its technology basis?"

"Enzymotec offers investors a robust multi-year growth opportunity. Leveraging attractive categories including infant nutrition and health & wellness, we forecast 3-year CAGRS of 55% for net sales and 70% for EBITDA through 2015, a result of core category growth and company-specific innovation and distribution."

The analysts come up with a valuation range of $32 to $34 based on 27X 2015 EPS of $1.22, representing over 40% year-over-year growth.

In a market loaded with speculative small cap stocks that are void of real earnings growth, ENZY offers an established business niche and solid potential. Clearly, this is what Paulson & Co. and Visium saw too.

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