ChartWatchCentral Stock Picks

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Date: May 30, 2003
Company: NBTY Inc.
Ticker: NBTY
Price: $15.49
Target Price(s): $17.85
Opinion: Bullish
Comments: After surging 23% between March 12th and April 2nd, versus a 12% gain for the NASDAQ Composite, NBTY, Inc. (NBTY) peaked within one percent of its highest level since July 1998. The trend quickly reversed and NBTY plunged 26% between April 2nd and April 25th, compared to a 14% surge for the NASDAQ Composite. For the past month NBTY has been consolidating near the lower end of its six-month range. (chart #1)

Supported by rising revenues, earnings have been on a tear in recent years, with the bottom line soaring 84% in 2002, to $1.14 per share. The company beat Wall Street's expectations in five of the past six quarters, with four of those reports exceeding the typical guess by more than 15%. Going forward, Wall Street's prognosticators expect NBTY to earn $1.29 this year and $1.50 in 2004. At its most recent price of $15.49 per share, the stock touts price/earnings multiples of 12 and 10 based on projected 2003 and 2004 earnings.

NBTY is currently trading at a discount to projected earnings growth of 13% this year and 16% next year. Meanwhile, Wall Street expects the company to grow earnings by 19 percent per annum (on average) over the next five years, compared to 12% for its peers.

Since the end of April, NBTY appears to have been tracing out a double bottom. We believe strong support resides at $14.75, since that level coincides with the April 25th low, as well as a 19-month uptrend. Overhead resistance is perched near $16.10, $16.68 and $17.90. (chart #1 and #2)

To profit from a move to our upside target, we like the September 15 call (Symbol: NBQIC), which is currently fetching $1.65 per option. If the fundamentals remain intact, the shares will probably reach $17.85 over the next several months, leading to at least a 50% gain for this option.


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