Analyst Says Negative Allergan Headlines Are Priced In, Upgrades Stock

Allergan plc Ordinary Shares AGN have seen heavy selling pressure throughout parts of 2017, but some analysts are encouraging investors to take advantage of the weakness.

The Analyst

Morgan Stanley's David Risinger upgraded Allergan's stock rating from Equal-weight to Overweight with an unchanged $200 price target.

The Thesis

Allergen's stock has come under heavy selling pressure since July for four reasons, Risinger said:

Downward revisions to the company's out-year outlook.
Concerns with the pipeline.
Competitive threats to Botox.
Concerning headlines relating to licensing the Restasis patent to an Indian tribe.

At this point in time, Allergan's negative overhangs are now mostly priced in, the analyst said. (See Risinger's track record here.)

For example, a potential competitor to Botox, Revance Therapeutics Inc RVNC, is unlikely to report Phase 3 data in the coming days that its RT002 is materially longer-lasting than Botox, the analyst said. Aside from Botox, expectations are that Allergan's depression therapy rapastinel will improve with the conclusion of three Phase 3 studies projected at the end of 2018, while Phase 2 data indicates the therapy could be a blockbuster, according to Morgan Stanley.

Risinger's $200 price target is based on an 11.7x multiple on the analyst's 2018 EV/EBITDA of 11.7x, which implies a slight discount to its major pharmaceutical peers at 12.0x.