Increase In Branded Revenue Makes Allergan PLC (AGN) Interesting
Even as the third quarter was about to end, Allergan PLC (NYSE:AGN) indicated that it would expect the potential growth of 10% in branded revenue in the second half of the current year. The disclosure came after the company divested its generic business to Teva Pharmaceutical Industries Ltd (ADR) (NASDAQ:TEVA). The company believes that its strong performance in all its businesses, as well as, mid-to-late stage pipeline places them in a strong position. As a result, the company expressed its confidence in meeting its growth targets for the remaining period of the year and the long-term.
Most recently, Allergan PLC (NYSE:AGN) said that it expects 10% branded revenue growth driving revenue to be over $8 billion after the affect of discontinued operations of its generic business. The company indicated that it would report its global generic business as discontinued operations in the third quarter.
The British firm also expects adjusted earnings to range between $6.25 and $6.65 a share in the second half of the current year. Its adjusted EBIT is predicted to range between $3.8 – $4.0 billion in the same period. Before the agreement to divest the generic business, the company estimated adjusted EPS to be $17 – $18.50 a share for the full year. Similarly, revenue was projected between $20.5 and $21.0 billion for the full year.
Top Ten Drug Companies By Sales
In its current status, Allergan PLC (NYSE:AGN) is ranked as one of the top ten drug makers by virtue of sales after the United Kingdom-based Actavis acquired the American-based Allergan for close to $70 billion. Its name was later changed to Allergan PLC. Following the merger, the company wanted to focus more on the branded business of its pharmaceutical unit. As a result, it sold its generics business to Teva Pharmaceutical Industries Ltd (ADR) (NASDAQ:TEVA) for $40.5 billion.
The company will be a development powerhouse loaded with 70 mid-to-final stage R&D projects that will take care of the customer, as well as, patient requirements. Allergan PLC (NYSE:AGN) CEO and President, Brent Saunders, said that the new Allergan would be nimble and lean with an extended margin profile. That will be fueled by leading brands in seven therapeutic areas besides a streamlined operating model and a simplified manufacturing network internationally.
Adjusted PE Holds Key
Valens Securities believes that the stock price of the company’s shares could double if the company can sustain the real adjusted earnings, as well as, growth rate. The adjusted profit earnings is termed as ‘value-to-earnings’ ratio. That comprised of enterprise value divided by adjusted earnings. At the current levels, the price is in line with market averages of approximately 21x – 22x. Also, at this ratio, the market is pricing only a minimal growth or the level of returns to drop.
Allergan PLC (NYSE:AGN) had adjusted operating cash flows of nearly $4.35 billion at the end of the year 2014 while cash flow was $2.24 billion. The investment advisor said that the company committed mistakes by treating R&D as an expense rather than an investment. Similarly, the company treated leasing expenses as non-financing expenses. The treatment provides different perspective from accounting angle. While the company reported a return on assets of 2% on an adjusted basis, Valens said that if it were properly adjusted its adjusted ROA would have been nearer to 30% like many financial databases suggests. Similarly, the current year’s estimated ROA has the potential to reach more than 40%.
As a result of the enhanced Discounted Cash Flow of Allergan PLC (NYSE:AGN), it was evident at the price of around $300, the valuations see low adjusted earnings upside. That is subject to the adjustment of the issues like the accounting treatment. However, if the company could sustain its growth rates on ROA, as well as Asset as in the past, then the company’s valuation levels would more than double from the current levels.
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