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3 Reasons Allergan Will Bottom

Mar. 06, 2018 12:51 AM ETAllergan plc (AGN)29 Comments


  • Allergan stock is trending near yearly lows but the bearishness is questionable.
  • Generic competition and LOE are manageable.
  • Three considerations include: 2017 achievements, 2018 outlook and more.

At its current valuation of 8.7 times forward earnings, markets appear to under-estimate Allergan’s (NYSE:AGN) fair value. The company inked its deal to sell its generics division to Teva Pharmaceuticals (TEVA) for $40.5 billion in July 2015. Last November 2017, it began selling a quarter of its Teva shares. With a strong balance sheet and falling debt, what, then, is triggering Allergan’s fall on the stock market? The usual question value investors will ask is if the stock bottomed yet.

There are four things investors should consider.

1) 2017 Achievements

Allergan built its cosmetics and beauty business by acquiring the Regenerative Medicine and CoolSculpting business. Complementing its growth through acquisitions is its $15 billion share buyback and debt reduction of $2.9 billion:

Source: Allergan

For the full-year 2017, Allergan’s revenue grew 9 percent, non-GAAP net income rose 21 percent to $16.35 a share and cash flow from operations totaled $5.9 billion. Bearish investors may have higher expectations in the company’s outlook. Allergan faced two headwinds in 2017. First, its revenue from other products, its source of growth, was at a flat to single-digit decline:

Source: Allergan

Per above, Allergan’s outlook for promoted brands last year was strong since it expects organic growth in the high single digits.

LOE brands declined:

2) Allergan Not Just the Botox Company

Allergan must shake off the notion that it is just a Botox company. In Q4, Botox sales grew 16 percent and added $118M in revenue. In Q4, botox revenue grew 20% year-over-year but Juvederm grew 28% Y?/Y while Ozurdex grew 17% YY. The Regenerative Medicine/CoolSculpting unit added $256M in revenue. Recall that on Apr. 28, 2017, Allergan paid $2.4 billion for Zeltiq, or 10x 2017 sales. On the flipside, exclusivity losses in Aczone, Namenda XR, and Asacol HD/Delzicol Minastrin weakened Q4 sales growth to +12 percent.

ChartAGN data by YCharts

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