Please ensure Javascript is enabled for purposes of website accessibility

Why Is Allergan Beating the S&P 500?

By Peter Stephens – Feb 23, 2014 at 5:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

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 (JNJ -0.70%) and AbbVie (ABBV -0.14%), 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.

Peter Stephens has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Johnson & Johnson. 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Johnson & Johnson Stock Quote
Johnson & Johnson
JNJ
$176.09 (-0.70%) $-1.24
AbbVie Stock Quote
AbbVie
ABBV
$158.20 (-0.14%) $0.23

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
351%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.