A look at Mylan’s valuation
Mylan (MYL) is a leading pharmaceutical company that deals with manufacturing and marketing of over 1,400 generic and specialty pharmaceutical products. To expand its product portfolio, the company recently completed the acquisition of Renaissance Acquisition Holdings’ topicals-focused business, including both generic and specialty products in June 2016, and Meda AB (MEDAA) in August 2016.
On September 23, 2016, Mylan (MYL) was trading at a forward PE (price-to-earnings) multiple of ~7.7x, as compared to the industry average of 11.6x. During the past year, the company’s forward PE has traded in the range of 7.2x and 11.1x.
By comparison, Perrigo (PRGO) is trading at a forward PE multiple of 12.9x, while Teva Pharmaceutical Industries (TEVA), and Allergan (AGN) are trading at PE multiples of 8.8x, and 15.0x, respectively.
On a capital structure neutral and excess cash-adjusted basis, Mylan was trading at a forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 7.0x, as compared to the industry average of ~10.5x on September 23, 2016.
The fundamental factors affecting stock prices and valuations include the performance of new and existing products, new and existing collaborations, and the results of clinical trials and product approvals.
This series will cover the performance of existing products as well as other factors driving revenues for Mylan. Mylan’s stock has fallen ~6% in the past 12 months, mainly due to controversies related to the company’s large price hike of its EpiPen, an emergency medical device used to treat anaphylaxis, a life-threatening allergic reaction with a rapid onset.
Analysts estimate that the stock has the potential to return 33% over the next 12 months. Analyst recommendations show a 12-month targeted price of $56.71 per share, as compared to the last price of $42.59 per share as of September 22, 2016. Among analysts, 64% recommend a “buy,” and 36% of the analysts recommend a “hold,” according to the Bloomberg consensus.
Remember, changes in analyst estimates and recommendations are based on changing trends in stock prices. To divest risk, investors can always consider ETFs like the SPDR S&P Pharmaceuticals ETF (XPH), which has 4.5% of its total assets in Mylan.
Continue to the next part for more on the EpiPen scandal.