Potential Pfizer Deal Heats Up Allergan (AGN) Stock

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Pfizer Tokyo Office
TOKYO - MAY 11: Pfizer building on May 11, 2012 in Tokyo. Pfizer is one of largest pharmaceutical companies worldwide with tremendous revenue $67.4 bn USD for 2011. It exists since 1849.

Allergan (NYSE:AGN) stock was up 0.5% to trade at $287.20 on Thursday, October 29 as the company announced that Pfizer (NYSE:PFE) was interested in a possible merger deal. Allergan is currently in preliminary discussions with Pfizer.

If the two companies were to combine, the merger would be the largest takeover deal in 2015. It would also create the largest healthcare group, and the company’s value would skyrocket $330 billion.

A merger of this magnitude would increase Pfizer’s revenue while lowering its corporate tax rate. Allergan is a Dublin-based company, and tax rates are much lower compared to the U.S.

Analysts at Bernstein noted that Allergan was a good fit for Pfizer.

Pfizer shares are up 1.21% to trade at $35.45 last Thursday morning.

Despite the good news, experts still rate Allergan stock as a hold. This stock does have strengths, it also has weaknesses, and there is little evidence that suggests either a negative or positive performance for this stock.

Allergan does have robust revenue growth, its profit margins are expanding, and the company’s cash flow is good. That said, Allergan’s net income is deteriorating, earnings-per-share is weak, and return on equity is disappointing.

The company’s revenue growth is impressive and exceeds the industry average of 6.2%. Over the last year, revenues jumped 115.8%. However, it seems as if this jump in revenue has not affected the company’s bottom line. This is evident in the decline in the company’s earnings-per-share.

Allergan’s net operating cash flow jumped 157.87% to reach $1,401.30 million. The company has also surpassed the industry’s average cash flow growth rate, which is -45.83%. Yet, Allergan has underperformed when compared to the pharmaceuticals industry in the S&P 500. The company’s net income has decreased significantly, 599.2%, compared to the same quarter last year. Net income plummeted from $48.70 million to $-243.10 million.

Compared to one year ago, the company stock is trading at a much higher level despite its earnings. It’s unlikely that the company’s fundamentals will impact the stock in either direction, which means the stock could move up or down based on the push and pull of the broader market.

Allergan‘s return on equity has decreased from the previous year, which implies that the company has minor uses. Compared to other pharmaceutical companies, Allergan’s return on equity trails the S&P 500 in the industry average.

The company is due to report its third quarter results before the opening bell on Wednesday, November 4, which will give investors an idea of where the company is headed.

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