Analysts Disagree Over Significance of Akorn, Inc.’s Financial Errors (AKRX)
April 28, 2015 7:30 AM EDT in Contributor Opinions • Industrial
Akorn, Inc. (NASDAQ:AKRX) announced on Friday that it will have to restate financials from 2014 due to accounting errors. Akorn warned that their financial reports for 2014, filed by KMPG, should not be relied upon. Though the pharmaceutical company affirmed its 2015 earnings per share guidance, the stock fell by more than 20% on Monday following the announcement.
Akorn identified the 2014 accounting missteps when reviewing financials for the first quarter of 2015. The miscalculations stemmed from understatements of rebates and other sales allowances. Though the company is still determining the exact impact of the miscalculations, initial estimates believe the errors resulted in a $20 million to $35 million overstatement of net revenue and pre-tax income for the full-year 2014.
Consequently, Akorn warned investors that it does not expect to file its quarterly report by the SEC deadline. However, Akorn affirmed guidance for 2015 earnings, expecting to post adjusted diluted EPS between $1.88 and $1.98.
On April 27, Akorn announced recent executive appointments including Randall Pollard who was appointed Corporate Controller. In this role, Pollard will oversee all accounting and financial reporting.
Analysts weighed in on the impact the flawed accounting will have on the pharmaceutical company.
On Monday, analyst David Steinberg reaffirmed a Buy rating on Akorn, though he did not provide a price target. Steinberg does not think the accounting errors will have a significant impact on the stock. He has rated Akorn once before on April 20, when he set a $56 price target for the stock. He was bullish on Akorn because he believed its clobetasol cream was more successful than that of Actavis’s.
Since David Steinberg has only rated Akorn once before on April 20, he has a 100% success rate recommending the stock with a +1% average return. Overall, David Steinberg has an 81% success rate recommending stocks with a +24.5% average return per rating.
Separately, analyst David Amsellem of Piper Jaffray downgraded Akorn from Overweight to Neutral with a price target of $53. Amsellem commented, “Though management does not believe the accounting issues will impact 1Q15 results, and it is sticking with its 2015 guidance, there is in our view far too large of a credibility gap to simply take those statements at face value.” Amsellem believes the company has lost credibility to the point that Akorn must replace its CFO.
David Amsellem has rated Akorn four times since July 2012, earning a 67% success rate recommending the company with a +25% average return per AKRX rating. Overall, Amsellem has an 80% success rate recommending stocks with a +23.7% average return per recommendation.
On average, the top analyst recommendation for Akorn on TipRanks is Hold.