ACT : NYSE : US$250.38
Actavis is an integrated global pharmaceutical company
that develops and markets both brand and generic drugs.
With the acquisition of Forest, it has transformed itself
into a formidable brand/generic hybrid pharmaceutical
company with a truly global scope.
All amounts in US$ unless otherwise noted.
Life Sciences — Specialty Pharmaceuticals
Q3 REVIEW: NO ONE CARES ABOUT ANYTHING BUT M&A ?
Actavis announced a great Q3 and raised guidance. Revenue beat our
numbers by $34M, and EPS beat us by $0.15 and consensus by $0.08.
We like the stock on its own merits now with the durability provided by
the Forest products but are becoming increasingly concerned that it’s
getting caught up in the market euphoria that might create a situation
where it would overpay for Allergan.
Synergies already materializing. Breaking the results into Actavis and
Forest components – revenue from Forest products were +14.7% Y/Y
and the Actavis base business was +33.2% Y/Y. As the integration
accelerates and strong performance continues, we don’t see why Actavis
would continue to have a Spec Pharma cellar multiple, and hence are
looking for both an expansion and continued upward earnings revisions.
Salix or Allergan or something else? Although no names were obviously
disclosed, most questions were aimed at deciphering the next
acquisition target: 1) strategic rationale is more important than EPS
(which we find fascinating given there’s virtually zero strategic fit
between Actavis and Allergan); 2) prefer friendly deals as hostiles result
in loss of human capital; and 3) maintain 3.5x leverage.
We use a standard DCF for our raised $300 target, based on a 10%
discount rate and terminal growth of 2.6%. Risks include: failure to
integrate Forest; undue pricing in US generics; and/or failure to obtain
FDA approvals for the seven key Forest products.