Why Is Allergan Beating the S&P 500?

Allergan (NYSE: AGN) is up versus the S&P 500 in 2014 -- especially since its results were released in early February. Here's why that is.

Feb 23, 2014 at 5:00PM

Since releasing its fourth-quarter results on Feb. 5, Allergan's (NYSE:AGN) share price is up 9.6%. This comfortably beats the S&P 500's return over the same time period, with the wider index being up 5.3%.

So what's the reason for the strong show from Allergan in recent weeks? More importantly, though, can it maintain its strong showing of late throughout the rest of the year?

Strong growth prospects
The fourth-quarter results showed that Allergan had a challenging quarter, with earnings per share being $0.01 lower than they were in the fourth quarter of 2013. Despite this, it was a strong year for the company, with EPS increasing by just under 17% and being forecast to increase at a faster rate over the next two years.

EPS are forecast to grow by over 28% in 2014 and by 13.3% in 2015, thereby giving an annualized forecast EPS growth rate of over 20% over the next two years. This is highly impressive and is significantly higher than the average for the S&P 500, where mid-single-digit EPS growth remains the norm.

Sector comparisons
When compared with Pharmaceutical sector peers, such as Johnson & Johnson (NYSE:JNJ) and AbbVie (NYSE:ABBV), the impressive nature of Allergan's EPS forecasts is evident. Indeed, Johnson & Johnson is forecast to deliver EPS growth of 21% in 2014 and 7.9% in 2015, which works out as an annualized growth rate of just over 14% over the next two years.

AbbVie, meanwhile, is forecast to deliver EPS growth of just under 22% in 2014 and just over 14% in 2015. This works out as an annualized rate of just under 18% over the next two years, comparing favorably with Johnson & Johnson's 14% but being behind Allergan's 20% per annum.

Strong news flow
Part of the key to Allergan's above-average growth rate is positive news flow regarding the potential for its products. For instance, during the fourth quarter of 2013, Allergan received approval from the FDA to market Juvéderm Voluma, the first and only filler approved to temporarily correct age-related volume loss in the cheek area in adults over age 21.

Furthermore, Vistabel received a positive opinion from the Agence Nationale de Securite du Medicament et des Produits de Sante for the temporary improvement in the appearance of moderate to severe canthal lines (crow's feet lines), either alone or at the same time as glabellar (frown) lines. Allergan now has licenses in 19 countries in the European Union, which bodes well for future sales growth of the product.

Don't overlook the rivals
Of course, Johnson & Johnson and AbbVie also have their own positive news flow regarding the potential of their products. For instance, Johnson & Johnson has had success with FDA approvals for ibrutinib (lymphoma) and simeprevir (hepatitis C), while the company is also seeking to grow its non-pharmaceuticals capability and has raised capital already in 2014 through the sale of its blood testing unit to Carlyle Group for just over $4 billion.

Meanwhile, AbbVie announced the completion of its Phase 3 hepatitis C virus studies on the day of its fourth-quarter results release. The news was positive, with patients enrolled in the trials sustaining relatively high responses to treatments. Furthermore, AbbVie announced during the fourth quarter of 2013 the initiation of two further phase 3 trials, which highlights the potential the company has in its mid and late-stage pipeline assets,

Looking ahead
So while all three companies have strong growth potential and encouraging news flow regarding their pipelines and product developments, the higher forecast growth rate of Allergan could be the reason it has beaten the index (as well as Johnson & Johnson and AbbVie -- by 13% and 10%, respectively) so far in 2014. Indeed, Allergan looks well placed to continue to experience a strong 2014 and could stay ahead of the S&P 500 through the rest of the year.

The Motley Fool's top stock for 2014
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Peter Stephens has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers