Good mention in Motley Fool today!
SFBC International
SFBC International provides clinical and laboratory drug testing services for the pharmaceutical, medical device, and biotech industries. Negative press reports during the past three months, including allegations that the company subjected patients and staff to dangerous conditions and that their Miami clinical facility was structurally unsafe, have caused the stock to drop from the mid-40's to the low-20's. And a few weeks back, the SEC announced an informal review of the company. Informal or not, SEC actions don't go away overnight, and any mention of SEC attention makes for jumpy investors.
Although third-quarter financial results were strong, the company will not emerge unscathed. One of SFBC's customers cancelled contracts with the company following the recent reports, and other customers could follow suit. SFBC canned its chairman (a subject of the SEC inquiry) and CEO, which raises the possibility that the bad news isn't finished. We can anticipate that SFBC will continue to incur costs associated with addressing the legacy of the negative attention, and we should not expect the fourth-quarter numbers to be a thing of beauty.
Still, SFBC has many of the characteristics we're looking for in an attractive bargain. Notably, the company's troubles are not the result of poor financials, and SFBC's strong historical performance indicates that the company knows how to run its business. In response to the depressed share price, the company recently announced a one-million-share buyback program (which would amount to more than 5% of outstanding shares). Finally, at 13.4 times forward P/E (a 45% discount to the industry average), the company is cheap. If SFBC can effectively address the negative charges in short order, its stock could enjoy quite a ride. |
