Mallinckrodt Shares Trending Up On Positive Multiple Sclerosis Outlook

• Shares of Mallinckrodt PLC MNK are down 27 percent year-to-date.
• Morgan Stanley’s David Risinger upgraded the rating on the company from Equal-Weight to Overweight, while raising the price target from $74 to $88.
• A recovery in Acthar sales indicates robust growth potential for the company, Risinger noted.

Mallinckrodt reported better-than-expected 10 percent y/y increase in Acthar sales for the September quarter. The upside provides greater confidence in Acthar and the company’s overall growth prospects, analyst David Risinger stated.

Risinger attributed the slowdown in Acthar growth in recent years to payer constraints. Improved drug access is expected to allow management to deliver on its projected mid-single to low-double digit growth in F2016. “We expect management to drive additional confidence in Acthar growth prospects at the December 7 analyst day,” Risinger wrote.

The EPS estimate for 2016 remains unchanged at $8.00, while Malinckrodt can beat expectations, which would drive multiple expansion, the analyst said.

“Current '16E P/E of 9.0x and '16 EV/EBITDA of 8.3x (vs. spec pharma median of 13.7x and 10.4x, respectively) represents an attractive entry point, in our view,” the Morgan Stanley report mentioned.

The long-term EPS growth targets for F15-20 have been raised from 9 percent to 10 percent on operating leverage. Mallinckrodt is taking steps to reduce SG&A as it becomes more efficient and gains synergies from its acquisitions. Pricing or volume declines may, however, result in new payer pressures and restrict Acthar sales, Risinger pointed out.