Allergan plc Ordinary Shares (NYSE:AGN) Well-Positioned to Work Through Health Care Headwinds

January 4, 2017

CEO Henry Beukema III of Guyasuta Investment Advisors says Allergan plc Ordinary Shares (NYSE:AGN) is well-positioned to work through pricing headwinds in the pharmaceutical space and over time should meet or exceed analysts’ expectations.

The reason we find Allergan attractive is that 41% of their business is private pay. And while we do think that there will be pricing headwinds in the pharmaceutical space going forward, we think that they’re well-positioned to be able to work through that, especially given that they have upcoming products in their pipeline. If those products end up getting through all the regulatory approvals and have strong effectiveness, then they’ll be able to have some element of pricing power.

We like Allergan based on the valuation. It’s currently trading at around 12.5 times forward earnings. And we’re using a conservative $15.50 per share for the 2017 estimate.

We think that health care, in general, has been out of favor, and Allergan has also been out of favor because they have recently sold their generic assets to Teva (NYSE:TEVA). And as analysts have reset their models, the company has not yet achieved a quarter where they’ve either met or beaten expectations. And we think that, over time, as the operational execution continues to improve — and we look at the fact that our forecasts have them growing in the mid to high single digits on the topline with mid-double-digit-type growth on an earnings-per-share basis. We think that that’s attractive here, but we just need to get through a few quarters where they show the operational execution and meet or exceed the analysts’ expectations.

Henry S. Beukema III