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What Allergan’s Valuation as of July 13 Tells Us

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Allergan’s valuation

The two valuation multiples used for valuing companies like Allergan (AGN) are the forward PE (price-to-earnings) ratio and the EV-to-EBITDA (earnings before interest, tax, depreciation, and amortization multiples), considering the relatively stable and visible nature of such companies’ earnings.

For 2Q17, Wall Street analysts estimate AGN’s EPS (earnings per share) to come in at $3.93, which would be a 17.5% growth over 2Q16.

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Forward PE

PE multiples represent what one share can buy for an equity investor. On July 13, 2017, Allergan (AGN) was trading at a forward PE multiple of ~14.4x, compared with the industry average of 11.1x.

Bristol-Myers Squibb (BMY), Pfizer (PFE), and Mylan (MYL) are trading at a forward PE multiples of 17.9x, 12.5x, and 7.1x, respectively.

Forward EV-to-EBITDA

On a capital-structure neutral and excess-cash-adjusted basis, Allergan is now trading at ~13.5x, which is higher than the industry’s average of ~9.4x. Bristol-Myers Squibb (BMY), Pfizer (PFE), and Mylan (MYL) have forward EV-to-EBITDA multiples of 15.7x, 10.1x, and 7.9x, respectively.

Analyst recommendations

According to the data on July 13, 2017, Allergan’s stock value has increased by ~2.5% in the last 12 months and by 16.9% in 2017 YTD (year-to-date). Analysts estimate that the stock has the potential to return ~10.9% over the next 12 months.

These analyst recommendations show a 12-month targeted price of $272.44 per share, compared with its price of $245.59 per share on July 12, 2017.

There are 21 analysts tracking Allergan’s stock. Of these, 15 recommend a “buy,” while six recommend a “hold.” None of the analysts recommend a “sell.” The consensus rating for Allergan stands at 2.1, which represents a buy for long-term growth investors.

To divest risk, investors can consider ETFs like the iShares US Pharmaceuticals ETF (IHE), which has 7.0% of its total assets in Allergan.

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