UPDATE: Morgan Stanley Initiates Coverage on "Stand Out" Mallinckrodt
In a report published Wednesday, Morgan Stanley analyst Christopher Caponetti initiated coverage on Mallinckrodt(NYSE: MNK) with Overweight and a $60.00 price target.
According to the report, MNK stands out as a diversified, mid-sized spec pharma company with low debt, diversified revenues and seasoned mgmt. It is believed that consensus underappreciates management's new pricing initiatives and potential to pursue value-enhancing M&A.
“Cost cutting and mix shift are important drivers of margin expansion, and we believe generics pricing power is underappreciated,” the report noted. “MNK is a leader in controlled substance generics, and prices on oxycodone and morphine (est. 1/3 of generics revenues) appear to have doubled since September based on our channel checks. We expect add'l increases on other products over time. Unlike commoditized generics, controlled substances enjoy limited competition (Top 3 have 70% share) and the threat of new entrants is low (e.g., DEA quotas).”
Some risks to their target price include margin expansion and/or tax rate surprise to the upside or downside, greater than expected volume headwinds from regulations and potential deals destroy shareholder value.
MNK closed Tuesday at $52.16 with shares trading up at 2.88 percent.
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