Morgan Stanley: We Still Like Actavis Despite Weaknesses
In a report published Friday, Morgan Stanley analysts maintained an Overweight rating on Actavis plc (NYSE: ACT), with a price target of $343.
Actavis' shares have declined by 8 percent since March 20. The analysts believe that four factors have exerted pressure on the share price:
- Concerns surrounding 1Q dilution from financing before close of AGN as well as the company missing consensus 1Q EPS - The analysts believe that this is "irrelevant to the investment thesis," since it is a financing issue.
- Management suggested that it may not update guidance for 2015 until after the announcement of 2Q results
- Concerns surrounding competition to key Allergan drug Restasis (dry eye) from Shire's new drug lifitegrast, after the FDA granted priority review to Shire's lifitegrast NDA and assigned a PDUFA date of October 25 - The analysts expect Restasis to generate $1.4B in revenue in 2016, representing 6 percent of the company's total revenues $24.8B. This drug could contribute 10 percent of EPS.
- Some hedge funds have shorted ACT stock due to the three factors above.
"We remain bullish on ACT growth prospects (14% EPS CAGR from 2015-2020), and we still see ACT's transition from value (generics) to growth (brands) as a positive for investors," the analysts said. Morgan Stanley considers the current weakness in Actavis' shares as a "buying opportunity."
The EPS estimate for 1Q15 has been reduced from $4.25 to $3.85 to reflect deal financing dilution prior to the Allergan stock close.
Latest Ratings for ACT
|Jun 2015||Raymond James||Initiates Coverage on||Outperform|
|May 2015||Deutsche Bank||Maintains||Buy|
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