Mallinckrodt Downgraded By Raymond James On Lack Of 'Rational Valuation Framework'

Raymond James downgraded Mallinckrodt Public Limited Company MNK on valuation after the drugmaker's second-quarter report. 

The Analyst

Raymond James analyst Elliot Wilbur downgraded Mallinckrodt from Outperform to Market Perform.

The Thesis

The Q2 print demonstrates Mallinckrodt's resilience, as sales of HP Acthar were in line with projections, Wilbur said in a Wednesday note. (See his track record here.) 

Sales of the drug increased 20 percent sequentially and an imminent decline seems unlikely, the analyst said. 

"We are increasing our 2018 and 2019 adjusted EPS projections to $6.54 and $7.52, from $6.04 and $7.10, respectively, to account for [Q2] over performance, increased full-year 2018 guide and modest increases to 2019 top line expectations," Wilbur said. 

Raymond James is incorporating initial pipeline expectations in its post-2020 assumptions for the pharmaceutical company.

Wednesday's downgrade is driven by the absence of a "rational valuation framework" to support significant upside to the stock, the analyst said. 

“While pipeline optionality remains high with [the] valuation heavily discounting [the] potential to meaningfully buffer declining base product trends, even with [a] probability-adjusted contribution incorporated in post-2021 numbers, we expect EBITDA levels to drop meaningfully post-2020." 

Price Action

Mallinckrodt shares were trading down 1.05 percent to $29.13 at the time of publication Wednesday. 

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