Lannett Company, Inc. (LCI – Snapshot Report) is cashing in on the demand for generic drugs. This Zacks Rank #1 (Strong Buy) just announced a huge acquisition which will be accretive to earnings nearly immediately.

Lannett, with a $2 billion market cap, makes thyroid, cardiovascular and pain management generic drugs.

Acquisition of Kremers Urban Pharmaceuticals Will Diversify Its Business

On Sep 2, Lannett announced it was acquiring Kremers Urban Pharmaceuticals, an American specialty generic subsidiary of UCB S.A. for $1.23 billion in cash and loans.

This is a game changing acquisition for the company as it basically boosts its market cap by 50% in a single deal. It also diversifies its product line.

Kremers drugs treat a bunch of different conditions including ADHD, gastroesophageal reflux disease, hypertension and respiratory disease. This will give Lannett a whole new template from which to operate.

The company said the deal will be accretive to fiscal 2016 in the mid-to-high single digits and 20% to 25% to EPS in fiscal 2017.

Estimates Jump

Analysts immediately raised estimates to reflect the Kremers deal, which isn’t expected to close until the fourth quarter of calendar 2015.

Fiscal 2016’s Zacks Consensus Estimate jumped to $3.95 from $3.81 in the last week.

Fiscal 2017’s Zacks Consensus Estimate rose to $4.72 from $4.14 in the last 7 days, which is earnings growth of 19.5% over this year.

Solid Fundamentals

With all the recent M&A activity, there aren’t many mid-cap generic drug makers left out there.

Lannett shares jumped on the Kremers acquisition news, but they’re still trading well below their 2015 highs.

Shares are still very attractively priced. Lannett trades with a forward P/E of just 14 which is under the average of the S&P 500 of 16.7.

For investors looking for a cheap generic drug play, Lannett should be on the short list.

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