Actavis (ACT): Forest Acquisition will add substantial sales

By J. Royden Ward, Chief Analyst, Cabot Benjamin Graham Value Investor
From Cabot Wealth Advisory 5/22/14 Sign up for Cabot Wealth Advisory—it’s free!

Actavis (ACT)
, formerly Watson Pharmaceuticals, is a leading manufacturer of generic drugs. Actavis’ goal is to create difficult-to-produce, off-patent drugs. The merger of Watson and Actavis Group in October 2012 catapulted the combined company into a leading U.S. generic drug company. In addition, the company greatly expanded its prescription specialty drug business when it acquired Warner Chilcott in early October 2013 for $8.5 billion.

Actavis, based in Dublin, Ireland, will take another giant step forward with its proposed purchase of Forest Laboratories for about $25 billion. The deal, due to close in mid-2014, will combine two of the world’s fastest growing specialty pharmaceutical companies. If successfully completed, Forest will add substantial sales and earnings in 2015. The move will also form a multifaceted drug company with an extensive pipeline of new products for future introduction.

Sales will likely advance 29% and EPS (earnings per share) will jump 37% to 14.30 during the 12 months ending 3/31/15. The recent Warner Chilcott purchase and promising new product introductions will spur results. In addition, the Affordable Care Act will boost sales and earnings during the next 12 months and beyond. Sales and earnings growth (not included in my estimates) will be greatly enhanced if the Forest Labs merger materializes.

With a price to earnings ratio (P/E) of 19.9 times current EPS and a PEG ratio of 0.94, ACT shares are clearly undervalued, even though the company does not pay a dividend. I calculate PEG ratios by dividing the current P/E of 19.9 by the sum of the forecast five-year EPS growth rate and dividend yield, which is 21.2% plus 0.0%. Debt is a tad high, but ACT’s expected 2014 cash flow of $24.00 per share will be used to pay down debt quickly. I expect ACT shares to reach my Min Sell Price of 245.68 within one year.

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Actavis (ACT): A standout among undervalues companies

By J. Royden Ward, Editor of Cabot Benjamin Graham Value Investor
From Cabot Wealth Advisory 4/23/13 Sign up for free Cabot Wealth Advisory

This healthcare company clearly stands out in my list of 17 undervalued companies.

Actavis (ACT)
Current Price 97.85; Max Buy Price 98.83, formerly Watson Pharmaceuticals, is a leading manufacturer of generic drugs whose goal is to produce difficult off-patent drugs. The merger of Watson and Actavis Group in October 2012 created this leading U.S. generic drug company. Generic drugs account for about 75% of revenues, and their use is growing fast.

Actavis markets 160 generic drug products in the U.S. and 54 in Canada, comprising a wide range of therapeutic categories. ACT’s international division, Arrow Group, markets 50 generic products in Europe, Asia, South Africa and Australia.

Actavis currently has about 130 Abbreviated New Drug Applications (ANDAs) with the U.S. Food & Drug Administration (FDA). An additional 500 applications are on file outside the U.S. The company sells its products primarily through distributors and chain drug store operators, including McKesson and Walgreen.

Actavis’ sales will likely advance 27% and EPS will jump 30% during the 12 months ending 3/31/14. The recent merger and promising new product introductions will spur results. In addition, the Patient Protection and Affordable Care Act will boost sales and earnings in 2014 and beyond. With a price to earnings ratio (P/E) of 12.1 times my forward 12-month EPS estimate of 8.12, ACT shares are low risk and clearly undervalued.

I expect ACT shares to reach my Min Sell Price of 129.65 within one year.

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Company Details

Actavis (ACT)
Morris Corporate Center III
400 Interpace Parkway
Parsippany, New Jersey 07054
862-261-7000
www.actavis.com
Index Membership: N/A
Sector: Healthcare
Industry: Drugs – Generic
Full Time Employees: 17,700