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Stock Analyst Update

Allergan's 1st Quarter In Line With Expectations

The wide-moat firm hasn't yet faced competition for Restatsis, so we think our fair value estimate stays mostly intact.


Wide-moat  Allergan's (AGN) first-quarter results were mostly within our expectations, as the company reported 2.8% growth while contending with generic competition on a number of products, including Minastrin and Estrace. Since Allergan has not yet faced generic competition on Restasis, management unsurprisingly lifted its year-end top- and bottom-line outlook. Our $15.70 adjusted EPS estimate for the year is now near the low end of management’s guidance range, due in part to the company’s share repurchases. The timing of a generic Restasis launch remains uncertain, but each additional month without competition adds nearly $80 million in sales. Despite the Restasis swing factor on year-end results, we see little change in our forecast assumptions or fair value estimate. Management still anticipates about $5 billion in operating cash flow for the year, which is in line with our expectations. The company’s stock still seems considerably undervalued to us despite concerns about future competition and growth opportunities from the pipeline.

Overall, performance of Allergan’s key products continues to live up to our expectations, but this year will remain a challenge from generic competition on a number of products like Restasis and Delzicol. Botox grew 12% thanks to strong U.S. therapeutic and international cosmetic sales. While facial filler growth slowed on promotional efforts, we still have an optimistic outlook for this franchise thanks to healthy demand and new products. Growth should accelerate over the back half of the year. Similarly, management’s efforts to shift CoolSculpting to direct distribution in international markets should improve from current growth affected by the transition. We still expect growth to improve in 2019 despite ongoing concerns on new competition on Botox, including the launch of competing CGRPs in migraine.

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Michael Waterhouse does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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