Grossly Undervalued? Allergan

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The company still expects losses in 2018 at GAAP basis

Share price of Allergan, $54 billion specialty pharmaceutical company, has been on a decline for the past year.

The Ireland-based pharmaceutical company just reported its fourth quarter and full year results.

Allergan reported 9% rise in revenue and a $4.4 billion loss compared to $14.7 billion profits a year earlier. Interestingly, Allergan could have more losses if not for the recent tax reform (~$3.9 billion more in estimation).

Allergan stated that losses arise from its impairment charges from its RESTASIS® drug ($3.2 billion) and ACZONE® ($646 million).

Allergan lost its RESTASIS® drug patent on October 2017. RESTASIS® delivered $1.4 billion in sales for Allergan in 2017. This is Allergan’s second-highest revenue generator.

Allergan also expects -$2.27 to -$1.52/share in earnings in 2018 in GAAP basis with 40% tax rate. On Non-GAAP basis with a tax rate of 14%, Allergan expects $15.25 – $16/share.

“2017 was a pivotal year for Allergan and we delivered solid results. We powered strong revenue growth of our top products and in each of our regions. We acquired, integrated and grew two new businesses and continued to advance our R&D pipeline. Allergan also continued to execute our capital deployment plan by completing a $15 billion share repurchase program, instituting a dividend and paying down debt in 2017.

“I believe that Allergan has a strong future and I am especially proud of our Allergan colleagues who continue to be Bold for Life by delivering treatments that make a difference for patients around the world.”

Brent Saunders, Chairman and CEO of Allergan

In 2017, Allergan ended up with $30 billion in debt (-$2.7 billion from 2016; 0.4x debt-equity), and $73.8 billion in book value (-$2.4 billion).

In the past three fiscal years, Allergan raised $3.4 billion in financing activities and generated $9.9 billion in free cash flow.

Analysts have an average price target of $224.10/share vs. $163.40 at the time of writing. Meanwhile, calculations indicated a per share figure of $610.

Disclosure: No shares in Allergan.

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