Actavis (ACT) has the best exposure to alternative dosage forms of any of the global generic drug manufacturers, a segment of the generic market that has higher barriers to entry and more sustainable cash flow generation over the longer term, says David Amsellem, Managing Director and Senior Research Analyst at Piper Jaffray & Co.
“Our top larger-cap idea is Actavis,” Amsellem said. “We think that the company has optionality on a number of high-value generic opportunities in the United States. They’re really not reflected in the company’s own expectations, Street expectations, and there are a number of high-value products in the portfolio right now that when combined with these opportunities give us real comfort on what we think is likely a double-digit growth story — top EPS growth for at least the next two to three years.”
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Actavis trades at about 10 to 11 times 2013 earnings, and Amsellem says this is a sustainable multiple given the dynamics of the company’s generics business.
“You’ve got a deep generics pipeline, you’ve got a number of high-value opportunities, higher barrier to entry opportunities in the pipeline that if they bear fruit are opportunities that are less likely to be commoditized,” Amsellem said. “Net-net, you have a p/e that is sustainable, good visibility on double-digit growth, and I think this makes for a very nice risk/reward for Actavis among the larger caps in the group. So that’s our thesis on Actavis.”
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