Analysts Weigh In on Allergan PLC (ALG) and Mallinckrodt PLC (MNK) Following Merger and Earnings Announcements

Analysts from Mizuho Securities and Cannacord weigh in on biopharm companies Allergan PLC (NYSE:AGN) and Mallinckrodt PLC (NYSE:MNK) following Pfizer-Allergan merger deal and Q4 earnings release. While one is bullish, anticipating the merger to occur earlier than predicted, the other remains on the sidelines, citing overall strength but little growth.

Allergan PLC

Canaccord analyst Corey Davis yesterday commented on the Pfizer-Allergan merger deal, maintaining a Buy rating on the company, with a $396 price target. The analyst stated that the merger could close sooner than expected.

In this merger, Pfizer will acquire Allergan for a total of $160 billion ($363 per AGN share), equating to a “30% premium from both companies’ unaffected prices as of October 28, 2015.” The deal states that for each AGN share, Allergan shareholders will receive 11.3 shares of the new company. Pfizer shareholders will receive one share of the new company for each Pfizer share in addition to a collective cash component of between $6 billion to $12 billion. Allergan shareholders will own 44% of the new company, and Pfizer shareholders will own 56%. The analyst believes “this easily fits within the treasury requirements for Pfizer to take on the Allergan tax domicile.”

Davis notes that AGN is trading at a 15% discount compared to the proposed deal price. He attributes this to investor concern related to the likelihood of the deal not closing due to government regulations or the inability of either company to seal the deal. However, the analyst believes that once the deal does close, most likely in mid-2016, shares of AGN will be closer to his target price.

Lastly, the analyst commented on the new lower corporate tax rate. Last week, Secretary of the Treasury, Jack Lew, issued a letter to Congress stating that “it will take new tax legislation to lower the US’s very high corporate tax rate.” Davis does not believe this will take affect before the deal will close, and raises the issue that “American companies are less competitive because of our high 35% corporate tax rate (compared to the global average of 25%). Tax inversions don’t really take away jobs, they just legally re-domicile US companies.”

Overall, analyst Corey Davis has a 55% success rate recommending stocks with an average return of 15.4% per recommendation. According to TipRanks’ statistics, out of 14 analysts who have rated AGN in the past 3 months, all 14 gave a Buy rating. The average 12-month price target for the stock is $367.71, marking an 18% upside from where shares last closed.

Corey Davis Consensus

Mallinckrodt PLC

Analyst Irina Rivkind Koffler of Mizuho Securities weighed in on Mallinckrodt after the biotechnology company reported fourth-quarter earnings results. The analyst views the company as stable, but does not predict significant growth.

Koffler states that Q4 earnings surpassed analyst expectations, posting revenues of $882.4 million compared to predictions of $870.5 million, and earnings of $1.84 per share compared to predicted earnings of $1.75 per share. She credits this difference in part due to a share repurchase program. However, the company maintained its guidance for FY16 because of a negative 10-15 million operating income resulting from an unexpected shutdown of a supplier who provides nuclear imaging.

Koffler states that management’s 10% topline growth estimates are boosted by an extra selling week in 2016 “which makes for tougher comps in 2017” when the analysts expects sales to level out. However, she believes that the company is making the right decisions for its brands through entry into the managed care and hospital contracts for both Acthar and Ofirmev. She states that new data from drug Acthar must be “published before it can be utilized in promotion (delays of at least a year, in our view).”

The analyst expresses a lackluster view regarding the company’s capital deployment. In the company’s earnings release, management stated that the company is generating cash of $1 billion per year “which can be used towards de-leveraging, buy-backs, and M&A.” She continues, “We think the company could pursue commercially risky pipeline assets and select generics which may not be well received.” Koffler concludes, “We view the business as relatively stable and the stock as fairly valued in the current range. We reiterate our NEUTRAL rating and $67 PT.”

Analyst Irana R. Koffler is ranked #2 out 3,689 of TipRanks analysts. Overall, she has a 71% success rate recommending stocks with a 44.9% average return per recommendation. According to TipRanks’ statistics, out of the 10 analysts who have rated Mallinckrodt in the past 3 months, 7 gave a Buy rating while 3 remain on the sidelines. The average 12-month price target for the stock is $100, marking a 51% upside from where shares last closed.

Irina Koffler Consensus



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