3 Reasons Actavis plc Stock Could Rise

Actavis has been a top performing healthcare stock over the past year, with shares rising 71%. Here are three reasons why this stock could continue to post strong gains going forward.

Sep 2, 2014 at 11:39AM

The healthcare sector has rebounded nicely from its second-quarter woes, with a number of big names like Gilead Sciences and Celgene Corporation posting stellar gains in recent weeks. The specialty pharmaceutical company Actavis (NYSE:AGN), for instance, has seen its share price climb a whopping 71% over the past year, propelled by soaring pharmaceutical sales and value-creating acquisitions.  

ACT Chart

ACT data by YCharts

Despite its parabolic-like chart, I believe there are three compelling reasons why this stock could continue to rise going forward. 

Reason No. 1
Actavis is growing sales at breakneck pace and this trend is expected to continue for the foreseeable future. Per the second-quarter numbers, for example, sales of Women's Health products skyrocketed by 984% year over year. In total, this unit raked in $230.8 million in the quarter, with most of this growth coming from double-digit sales increases for Lo Loestrin Fe and Estrace Cream.

Actavis also saw major jumps in the sales of urology/gastroenterology (284%) and dermatology products (110%) in the second-quarter compared to the same period a year ago. And not to be outdone, Anda distribution revenue grew by an astounding 55% to $427 million, compared a year ago.

All told, Actavis grew total revenue by 34% year over year due to the strong performance of these units. 

Looking ahead, management believes that revenues could climb yet another 25% to 35% in 2015, giving investors ample reasons to be optimistic moving forward. Indeed, this rosy revenue forecast yields a relatively cheap forward price-to-earnings ratio of only 13.8. 

Reason No. 2
Earlier this year, Actavis acquired Forest Laboratories in a cash and stock deal worth a reported $28 billion. And because Forest was in the midst of gobbling up Furiex Pharmaceuticals for its irritable-bowel syndrome drug eluxadoline, Actavis essentially merged with two promising companies at once.

The net result is that this new entity is expected to have pro forma combined revenue of $15 billion in 2015. Moreover, this merger significantly strengthens Actavis' GI product portfolio.

Perhaps most importantly, Actavis is now forecasting double-digit growth in EPS out until at least the end of 2017, primarily as a result of this acquisition. 

Reason No. 3
Management is expecting the company to generate upwards of $4 billion in free cash flow next year. While I wouldn't expect the company to begin offering a dividend, this bump in free cash flow could be used to create long-term value for shareholders in other important ways such as expanding research and development activities, share buybacks, or perhaps buying yet another company.

Foolish wrap-up
Based on these three reasons, I think Actavis' star is rising in the generic/specialty pharma industry. Top competitors in this industry like Teva Pharmaceutical Industries (NYSE:TEVA) are struggling to stave off newer versions and formulations of top-selling brands like generic Adderall, Lovaza and Xeloda, making their outlook precarious compared to Actavis.

Actavis' secret to generating strong top and bottom-line growth would appear to be its aggressive merger and acquisition strategy. The Forest Laboratories acquisition, for instance, is projected to grow product sales by nearly 50% in a single year. Teva, by contrast, is seeing sales growth slip into the low single digits and this trend is likely to continue with increasing generic competition for Copaxone.

Overall, I think Actavis looks like one of the best choices when it comes to specialty pharma companies and is poised to continue its upward momentum, making it a stock worth watching. 

Leaked: This coming blockbuster will make even Actavis jealous
The best biotech investors consistently reap gigantic profits by recognizing true potential earlier and more accurately than anyone else. Let me cut right to the chase. There is a product in development that will revolutionize not just how we treat a common chronic illness, but potentially the entire health industry. Analysts are already licking their chops at the sales potential. In order to outsmart Wall Street and realize multi-bagger returns you will need The Motley Fool's new free report on the dream-team responsible for this game-changing blockbuster. CLICK HERE NOW.

 

George Budwell has no position in any stocks mentioned. The Motley Fool recommends Celgene, Gilead Sciences, and Teva Pharmaceutical Industries. The Motley Fool owns shares of Gilead Sciences. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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