Allergan (NYSE:AGN) and Teva Pharmaceuticals (NYSE:TEVA) are on a seemingly never-ending downtrend. A few years after Allergan sold its Actavis Generics unit to Teva, both companies are giving poor returns for investors. What is wrong with these stocks?
Allergan’s Actavis unit sale lowered its debt/equity profile to 0.37 times. The problem is that the core products face a loss of exclusivity.
And the pipeline of new drugs that would fill the void is either failures or slow to grow. Allergan reported a Phase 3 flop for rapastinel, a drug that would have treated depression. Still, the company won the FDA’s approval for its migraine drug, ubrogepant.
To boost growth through M&A, Allergan acquired Envy Medical, a private firm that makes skin resurfacing products. This could prove a wasteful use of valuable resources and funds. Previously, Allergan acquired Zeltiq, whose CoolSculpting treatment targeted fat cells in the aesthetics market.
On the other side of the fence, Teva’s heavy debt load continues to weigh on the stock’s performance. The attack on generic drug prices will hurt cash flow and Teva’s plans on cutting down debt levels.
Takeaway
Investors demand change at Allergan, while Teva falling below $14 could attract bargain hunters. Both stocks trade at single-digit forward P/Es. Astute investors should look at future profit potential instead of valuations before buying the dip in either stock.
