Allergan's Next Strategic Move Is Key Focus Ahead of Earnings

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(Bloomberg) -- Allergan has a valuation problem and investors want to know what management is going to do about it. Shares have given up 37 percent of their value in the past nine months amid patent issues and competitive pressures.

Chief Executive Officer Brent Saunders is sure to face questions on the company’s strategic review during Monday’s earnings call. In March, he promised that the drugmaker would consider every option “with a sense of urgency." Since then Allergan briefly entertained bidding for Shire but quickly shelved plans after shares sank on the news.

RBC analyst Randall Stanicky would rather see Allergan turn to asset sales instead of a big M&A deal, and investor reactions to the Shire flirtation confirm he’s not alone. Focusing on the company’s higher-growth assets and shedding its mature ones could be the key to unlocking value, Stanicky told Bloomberg. “Presumably you’d get a premium” over just splitting those assets up, he said. A key part of his outperform thesis is based on Allergan successfully solving this problem, he said.

The Street is also hoping that the company will raise its 2018 forecast, Stanicky said. is based partly on the timing for a generic Restasis entrant and on expectations that the core business will perform well.

Piper Jaffray analyst David Amsellem takes a more cynical view. The company needs “fresh perspective at the top” after a string of “pretty suspect acquisitions,” he told Bloomberg News in a phone interview. Amsellem, who holds a neutral rating, believes the situation is reaching the point where activists could get involved. Allergan’s use of capital from its sale of its generics business has been an uninspired mix of share buybacks and deals.

ESTIMATES:

  • 1Q adjusted EPS estimate $3.35 (range $3.25 to $3.42) (Bloomberg data).
  • 1Q adjusted revenue estimate $3.59b (range $3.54b to $3.65b)
    • 1Q Botox revenue estimate $775.3m
    • 1Q Restasis revenue estimate $308.3m
    • 1Q Lumigan/Ganfort revenue estimate $158.8m
    • 1Q Viibryd/Fetzima revenue estimate $71.9m
    • 1Q Juvederm revenue estimate $270m
    • 1Q Namenda revenue estimate $47.3m
  • FY adjusted revenue estimate $15.23b (range $15.03b to $15.55b)

DATA

  • 17 buys, 10 holds, 0 sells; Avg PT $208.36 (~29% upside from current price)
  • Implied 1-day share move following earnings: 3.7%
  • Shares rose after 7 of prior 12 earnings announcements
  • Adjusted EPS beat estimates in 11 of past 12 quarters

TIMING

  • Earnings release expected April 30 before market open
  • Call 8:30am (NY time), (877) 251-7980 password: 67781149
  • Conference call website

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