Through The Fly's Eyes: Chattem Inc.

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



Chattem: OTC Drug Specialist

When it comes to O.T.C. drug products, folks are often surprised to learn that a single Tennessee outfit is responsible for nearly thirty of the best known names. It was founded 128 years ago, as the Chattanooga Medicine Company.

Chattem (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. Chattem sells its products in eighty countries, through such merchandisers as CVS Caremark (CVS), Safeway (SWY) and Walgreen (WAG).

The company surprised investors last week, when it reported Q3 EPS of 83 cents and revenues of $109 million. Analysts had been expecting 74 cents and $106 million. Management also guided FY07 EPS to $2.96-3.06 ($2.95 consensus) and FY08 EPS to $3.69-3.89 ($3.56 consensus).

The stock popped on the news and has since moved into a bullish "pennant" consolidation 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 stock with two "strong buys", one "buy", six "holds" and a "sell". Analysts see a 24% growth rate, through the next year. The CHTT Sales Growth rate (51.39%), EPS Growth rate (102.44%), Operating Margin (26.81%) and Revenue per Employee ($923.50k) compare favorably with industry, sector and S&P 500 averages. Institutions hold about 95% of the outstanding shares. The stock is one of those used to calculate the S&P 600 SmallCap Index. Over the past 52 weeks, it has traded between $34.21 and $74.00. A stop-loss of $63.00 looks good here.