XenoPort Near Attractive Levels
XenoPort, Inc.'s (XNPT) lead candidate is Solzira (XP-13512), a Transported Prodrug of gabapentin. XenoPort is partnered with GlaxoSmithKline (GSK) for development and commercialization in the U.S. and select countries outside the U.S. The drug has completed late-stage trials for the treatment of Restless Legs Syndrome. The data has been highly encouraging. XP-13512 could launch in the third quarter of 2009.
XenoPort currently trades with a market capitalization of around $1.25 billion. We think the market is coming to grips with the power XenoPort's Transported Prodrug technology. We believe there are potentially hundreds of currently approved molecules that have failed to achieve peak penetration because of deficiencies in the oral absorption or metabolism. This creates an enormous opportunity for the company to form alliances and partner with larger companies such as the deal with GlaxoSmithKline.
Our current rating is Hold with a $52 target. We think the company can earn $1.46 in 2011 and potentially $2.63 in EPS in 2012. We feel that $52, a market capitalization of $1.3 billion, is a fair value for the current fundamentals. We would be buyers of the stock on additional weakness.
Standard Motor Goes to Mexico
Standard Motor Products, Inc. (SMP) enjoys strong brand recognition and a less cyclical end-market within the auto and auto parts industry. Moreover, SMP expects to benefit from the shifting of its production facilities to Reynosa, Mexico due to lower labor costs.
However, slow growth, weak pricing in the company's key businesses and higher gasoline and metal prices are serious matters of concern. Further, the company's Temperature Control segment is facing strong competition from Chinese imports. Thus, we rate shares of SMP a Hold with a target price of $5.50.
With the shift to Mexico, the company expects annual cost savings of $9 million, starting in 2009. The company expects to achieve gross margin of 27% to 28%. However, the full benefit of the shifting of plants will be realized in 2009. Further, in the Engine division, the company has initiated a price increase of 3% to 3.5%, which is being implemented over the next few months. The company expects to see some of the benefits in 2008, but mostly in 2009.
Standard Motor Products is not exposed to the cycles of the automotive industry significantly, as it is focused on the aftermarket and is a leading niche market player. More than 50% of the business focuses on the traditional aftermarket while the rest stresses on retail aftermarket.
