Company Profile (excerpt from Reuters): Allergan plc, incorporated on May 16, 2013, is a specialty pharmaceutical company. The Company is engaged in the development, manufacturing, marketing and distribution of brand name pharmaceutical products, medical aesthetics, biosimilar and over-the-counter (OTC) pharmaceutical products. The Company operates through three segments: US Specialized Therapeutics, US General Medicine and International. The US Specialized Therapeutics segment includes sales relating to branded products within the United States, including Medical Aesthetics, Medical Dermatology, Eye Care, Neurosciences and Urology therapeutic products. The US General Medicine segment includes sales relating to branded products within the United States that do not fall into the US Specialized Therapeutics business units, including Central Nervous System, Gastrointestinal, Women’s Health, Anti-Infectives and Diversified Brands. The International segment includes sales relating to products sold outside the United States. Within its US Specialized Therapeutics, US General Medicine and International operations, the Company sells its brand and aesthetic pharmaceutical products primarily to drug wholesalers, retailers and distributors, including national retail drug and food store chains, hospitals, clinics, mail-order retailers, government agencies and managed healthcare providers, such as health maintenance organizations and other institutions.
Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|Defensive Investor; must pass 6 out of the following 7 tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$45,604,760,587||Pass|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||1.13||Fail|
|3. Earnings Stability||Positive EPS for 10 years prior||Fail|
|4. Dividend Record||Dividend Payments for 10 years prior||Fail|
|5. Earnings Growth||Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end||-392.79%||Fail|
|6. Moderate PEmg Ratio||PEmg < 20||31.61||Fail|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||0.71||Pass|
|Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.|
|1. Sufficiently Strong Financial Condition||Current Ratio > 1.5||1.13||Fail|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||30.67||Fail|
|3. Earnings Stability||Positive EPS for 5 years prior||Fail|
|4. Dividend Record||Currently Pays Dividend||Pass|
|5. Earnings Growth||EPSmg greater than 5 years ago||Pass|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||15.00%|
|MG Value based on 3% Growth||$62.89|
|MG Value based on 0% Growth||$36.87|
|Market Implied Growth Rate||11.56%|
|% of Intrinsic Value||82.11%|
Allergan plc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the poor dividend history, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $0.54 in 2015 to an estimated $4.34 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 11.56% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.
At the time of valuation, further research into Allergan plc revealed the company was trading below its Graham Number of $262.47. The company pays a dividend of $2.88 per share, for a yield of 2.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 31.61, which was below the industry average of 39.51, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-90.04.
Allergan plc receives an average overall rating in the ModernGraham grading system, scoring a C+.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||-$90.04|
|Number of Consecutive Years of Dividend Growth||2|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||12/1/2018|
|Total Current Assets||$6,475,400,000|
|Total Current Liabilities||$5,727,900,000|
|Shares Outstanding (Diluted Average)||335,200,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$15.86|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$4.34|
Other ModernGraham posts about the company
|Allergan PLC Valuation – May 2018 $AGN|
|Allergan plc Valuation – January 2017 $AGN|
|Allergan PLC Analysis – August 2015 Update $AGN|
|34 Companies in the Spotlight This Week – 2/7/15|
|Allergan Inc. Quarterly Valuation – February 2015 $AGN|
Other ModernGraham posts about related companies
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours. See my current holdings here. This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions. ModernGraham is not affiliated with the company in any manner. Please be sure to review our detailed disclaimer.