Chattem Inc: OTC drugs a specialty

Very often, folks have no idea what companies own and produce their favorite brand name products. When it comes to OTC drugs, there is Chattanooga, Tennessee firm responsible for a whole stack of the best-known names.

Chattem Inc. (NASDAQ:CHTT) provides over-the-counter drugs, personal care products and dietary supplements. Offerings include such pain treatments as dental analgesic Benzodent, topical analgesic Aspercreme, muscle pain reliever Flexall, menstrual symptom reliever Pamprin and analgesic Icy Hot. The company also makes sleep aid Melatonex, medicated powder Gold Bond and Mudd facial masks. In 2006, the firm acquired the Balmex, Kaopectate, Unisom, Cortizone, and Act brands from Johnson & Johnson. Chattem sells its products through mass merchandisers, drug stores, drug wholesalers and food stores, in about 80 countries worldwide.

The company surprised investors last week, when it reported Q1 EPS of 71 cents and revenues of $100.8 million. Analysts had been expecting 61 cents and $101 million. Management also raised FY07 EPS guidance from $2.66-$2.91 to $2.71-$2.96 ($2.77 consensus), citing the strength of its base business and the smooth integration of acquired brands for the favorable outlook. The stock popped through 30-day and 50-day moving average resistance on the news and has since been consolidating the gain in a bullish "pennant" pattern. Prices frequently exit pennants moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.

Brokers recommend the shares with three "strong buys," one "buy," six "holds" and two "sells." Analysts expect a 22% growth rate, through the next year. The CHTT Sales Growth rate (20.00%), EPS Growth rate (20.34%), Operating Margin (25.91%), Net Profit Margin (13.86%) and Revenue per Employee ($755.61k) compare favorably with sector and S&P 500 averages.

Institutions own about 87% of the outstanding shares. Over the past 12 months, the stock has traded between $27.99 and $60.89. A stop-loss of $51.40 looks good here.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.