Friday, June 12, 2009

See the Forest for its Cash

Forest Labs (FRX) may be the cheapest company I've ever seen. Best known for the anti-depressant Lexipro, the company faces questions about upcoming patent protection losses, pipeline issues, etc. At the current valuation, none of this matters.

Let's review:

Current share price = $24.40
Share outstanding = 304 million
Market capitalization = $7.4 billion
Total Debt = 0
Defined Benefit Pension Plan: None
Cash & Marketable Securities = $2.578 billion
Other Marketable Securities = $449 million

Cash and marketable securities of $3 billion? Yes.

Mr. Market says the underlying operating business of FRX is worth just $4 billion; a business that generated over $800 million in free cash flow last year. I made some working capital adjustments, so look at the raw data. In any case, cash flow from operations (CFO) was over $1 billion and capital expenditures (CapEx) were just $40 million. Forest Labs is a cash machine.

Even if Lexipro disappears in a few years, Forest Labs is ridiculously valued. It's priced for liquidation (or worse). What is the investment community missing? Can they count? Does anyone read financial statements anymore? There is no cleaner balance sheet in Corporate America.

Bruce Berkowitz of the Fairholme Fund gets it. He owns 20 million shares. I'm in good company.

1 comment:

  1. The CAPS community at Fool gets it and rates it 5 stars!