US Healthcare stocks have seen a volatile ride this year.The sector has been rife with takeovers, failed takeovers and the amazing fall Valeant Pharma from above $250 to below $100 in less than 3 months.
2CentView has a core position in Rite Aid, which following the take over bid buy Walgreen, is looking for another opportunity in the same sector.
Valeant Pharma looks cheap, but not a good idea to invest in something which is not understood, and their business and earnings model are under question.
Mylan stock looks cheap (FV=54) – it hit $74 in June after receiving a take over approach from Teva, while itself trying to takeover Perrigo!
Abbvie paid a hefty price for Pharmacyclics, after walking away from an inversion take over of Shire, following Treasury intervention.
Pfizer failed in it’s attempt to buy AstraZeneca.
Common to all these bids, is the need to invert to lower taxes – so when Pfizer was reported to have friendly talks with Allergan PLC – which has just completed the acquisition of Allergan INc, it could be Pfizer’s last chance for an inversion as Allergan is based in dublin. Maybe Allergan only bought Allergan to make the inversion trade with Pfizer possible – as it has to be a merger of near equals to make the inversion work.
Bottom line , all this means there is a possible trade on Allergan PLC. CNBC say the bid could be between 350 and 380, which is only 25x – Abbvie paid a much higher price for PharmaCyclics. This would create a Pharma giant on par with J&J.
2CentView FV on Allergan = 250 – but this does not factor the $40billion CASH sale of its generics business to Teva – which will make Allergan Debt free by the end of December. So FV could be $30 higher following this sale.
2CentView is that Pfizer will try and make this deal work. And Allergan will be receptive – at the right price. Assume $365 (mid of CNBC range).
So potential upside of $60 – 20%.
Trade: Buy Allergan ($AGN), target $365 – stop $275.
Talks are ‘friendly’ which means they could be ended at any time — but do not see Allergan trading below $280 if it does.