Allergan (AGN) is not having a good month on the markets. After peaking at $245 in May, the stock sold off after reporting first-quarter results. Earnings fell to $2.63 billion despite revenue rising 5.1% to $3.57B. The company forecast revenue of around $16 billion in 2017. Earnings will range from $9.70 to $10.20 per share.
Allergan’s GAAP earnings loss is due mostly to amortization, R&D charges, and in-process R&D impairments. The write-down on Teva (TEVA) dragged results for the quarter. Shares are locked up, so when Teva drops, AGN loses money. On the balance sheet, the company still holds $32 billion in debt. It has a plan for cutting debt by $5.5 billion by the end of next year.
Investors need patience with Allergan’s business. It will take around two or three quarters before the pipeline adds meaningfully to revenue. For 2017, management is expanding Medical Aesthetics, through its acquisitions of LifeCell and ZELTIQ. RESTASIS will face competition, which could limit growth. Still, AGN has 11 launches, which the company thinks will make $5 billion in peak sales. Products include VIBERZI, KYBELLA, TrueTear and XEN.
Takeaway
Allergan trades at a forward P/E of around 13x. The stock is fairly priced but value investors may get a better entry point if the stock dips.
