Allergan (AGN): Low Price to Book Value Ratio

By J. Royden Ward, Chief Analyst, Cabot Benjamin Graham Value Investor
From Cabot Wealth Advisory August 25, 2015 Sign up for Cabot Wealth Advisory—it’s free!

Low Price to Book Value Ratio is an effective yet easy ratio to calculate to determine if your stock choice is undervalued or overvalued. Simply divide the current stock price by the current book value per share. Most research services provide book value numbers for all companies. Book value represents the net assets of a company (total assets less liabilities). Price to book value ratios less than 2.00 indicates your stock is undervalued.

Allergan Corp. (AGN) provides a good example of a company with rapid sales and earnings growth selling at a low price to book value ratio. The company is a leading manufacturer of generic drugs. Allergan’s goal is to create difficult to produce off-patent drugs. Allergan (formerly Actavis) has grown rapidly in recent years by acquiring large companies within the pharmaceutical sector.

The Allergan/Actavis merger will create savings of $5.00 per share within the next 12 months. Sales will likely advance 28% and EPS will jump 21% to 19.20 in the 12 months ending June 30, 2016. AGN shares sell at just 1.76 times book value, which is very reasonable for a company in the healthcare sector. I expect AGN’s stock price to rise 26% to my Min Sell Price of 376.46 within one year. Buy AGN at the current price.

I will continue to follow AGN, as well as many other undervalued, high-quality companies in my Cabot Benjamin Graham Value Investor.

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Company Details

Allergan plc (AGN)
Morris Corporate Center III
400 Interpace Parkway
Parsippany, NJ 07054
Index Membership: N/A
Sector: Healthcare
Industry: Drugs – Generic
Full Time Employees: 21,600