Citi Raises Price Target On Actavis

Citi raised its price target on Actavis plc ACT from $250 to $310 Monday.

Analyst Liav Abraham was “confident in management’s ability to successfully integrate” Allergan, Inc. AGN and believed the “pro-forma entity will benefit from a durable and highly cash generative product portfolio, as well as continued focus in R&D investment and innovation.”

“While our pro-forma estimates are slightly below management’s expectations of double-digit top line organic growth (we forecast mid- to high-single digit revenue growth) and a $25 pro-forma EPS target in 2017e (we estimate $24.35), this transaction transforms both the quality and magnitude of ACT’s growth profile,” according to Abraham.

Abraham noted “the financial flexibility afforded by the decision to employ $9bn in equity and mandatory convertible preferred securities. This structure was likely crafted hand-in-hand with the rating agencies, and lends credibility to management’s commitment to ACT’s IG rating.

We believe that an equity raise will not occur in the very near term, but rather just prior to the deal closing. While ACT need not necessarily utilize the option to raise the full $9bn in equity, we believe any excess cash flows generated over the upcoming 6 months will likely be utilized towards debt pre-payments in order to meet the commitment to the rating agencies to de-lever rapidly,” according to Abraham.

The target price was based on a ~15x P/E multiple on pro-forma FY16 earnings of $21.23/share.

Actavis plc traded at $250.28, up 0.94 percent.