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Paul Larson, editor of Morningstar StockInvestor, and analyst Damien Conover say drug maker Schering-Plough will grow sales and earnings nicely.

Schering-Plough (NYSE: SGP) manufactures and markets a variety of health-care products, including prescription and over-the-counter drugs, animal health products, and foot-care products.

Its largest internal product is Remicade for autoimmune diseases, which it markets outside the US. It sells blockbuster cholesterol drugs Zetia and Vytorin through a joint venture with Merck (NYSE: MRK). Pharmaceuticals account for 80% of total sales, [and] 60% of revenue comes from overseas.

Through partnering, acquiring, and in-licensing, Schering-Plough developed a strong product line. Sales of Zetia and Vytorin combined for $5.2 billion in 2007, representing a majority of operating income.

The majority of Schering-Plough’s existing products are growing at a fast pace and are poised for continued growth. Remicade, an anti-inflammatory, leads with sales of $1.6 billion in 2007, up 33% from the previous year, representing 13% of total sales.

Facing the loss of Claritin in late 2002, Schering-Plough successfully cut overhead and streamlined operations. During the last four years, efficiency levels increased and a resurgent new product line emerged.

Schering’s marketed products appear well positioned for growth, with a few exceptions. Namely, Clarinex will face generic competition in late 2008, and we also expect the negative media coverage from [various] studies will sharply reduce Zetia and Vytorin sales.

Yet with the help of in-licensing and the 2007 acquisition of Organon, the company now has several drugs in Phase III development. We believe the TRA antiplatelet compound has multiple-billion-dollar market potential, and the company’s next-generation rheumatoid arthritis drug, Golimumab, could develop into a blockbuster compound.

During the next ten years, we project average annual sales growth of 8%, largely aided by the Organon acquisition. We think operating margins can improve from 3% in 2007 to 16% in several years as revenue increases off a lower-cost infrastructure.

Fred Hassan was named chairman and chief executive in 2003 to lead a turnaround as patent losses and increased competition plagued the company. Hassan brings a strong record of improving damaged companies. Hassan is replicating this style at Schering-Plough and bringing in top talent from prior firms, including pharmaceutical president Carrie Cox, whose strong leadership at Pharmacia helped guide the firm to rapid growth.

We like how the interests of management and stockholders are aligned as the company requires the CEO to own eight times his salary in stock and executive and senior vice presidents to own four times their salary in stock.

We believe Schering-Plough is worth $29 per share. We have incorporated [results of negative] studies, as well as the expected harsh media coverage, by lowering our US sales projections for Vytorin and Zetia to reflect over a 50% decline from peak sales. [Even if] Vytorin and Zetia sales go to zero (unlikely), we still think Schering would be worth $18 per share. (It traded below $14 Wednesday, not far above its 52-week low—Editor.)