Allergan, Inc. (NYSE:AGN) has been consistently increasing on the market since the market bottom, from nearly $32 per share in November 2008 to more than $116 per share in the middle of April 2013. However, Allergan has experienced a lot of recent volatilty, and now is near $105. The company is in the portfolio of several successful investors including Joel Greenblatt and Jim Simons. Should investors consider Allergan, Inc. (NYSE:AGN) at its current trading price? Let’s find out.
Founded in 1950, Allergan, Inc. (NYSE:AGN) is considered to be the multi-specialty healthcare company, developing and commercializing different pharmaceutical products for medical dermatology, neurological, medical aesthetics and obesity intervention in more than 100 countries globally. The company operates in two main business segments: Specialty Pharmaceuticals and Medical Devices. 82.4% of its $4.78 billion revenue is generated by the Specialty Pharmaceuticals segment while the Medical Devices segment generated nearly $925 million in sales in 2012. The Specialty Pharmaceuticals and Medical Devices segment contributed nearly $2 billion and $279 million, respectively in operating income.
Growing performance with a strong balance sheet
Allergan, Inc. (NYSE:AGN) has managed to consistently grow its revenue, from $4.4 billion in 2008 to $5.8 billion in 2012. Its net income also rose from $579 million to nearly $1.1 billion during the same period. The company only earned around $600,000 in profits in 2010. The extremely low net income in 2010 was due to a legal settlement of nearly $610 million and intangible asset impairment charges of $400 million. What I like about Allergan is its strong balance sheet with low leverage. As of December 2012, it had $5.84 billion in equity, $2.96 billion in cash and only $1.5 billion in long-term debt. Nevertheless, the company recorded as much as $3.47 billion in goodwill and intangible assets. Thus, its tangible book value stayed at $2.37 billion.
Johnson & Johnson (NYSE:JNJ): Bad news in India, good news in the U.S.
Allergan, Inc. (NYSE:AGN) is trading at $105 per share with a total market cap of $31.2 billion. The market values Allergan quite expensive, at 16.8 times EV/EBITDA. Compared to its much bigger peers including Johnson & Johnson (NYSE:JNJ) and Novartis AG (NYSE:NVS), Allergan has the highest EV multiple among the three. Johnson & Johnson is trading at $86 per share, with a total market cap of $239.7 billion. It is valued at only 10.8 times EV/EBITDA. Recently, Johnson & Johnson (NYSE:JNJ) has been facinga challenge in the Indian market. In India, Maharashtra FDA found out that the company has used ethylene oxide to kill bacteria in its baby powder. It seemed to be quite dangerous because ethylene oxide might cause lung damage and even cancer. Consequently, India has cancelled the company’s license to manufacture cosmetics at the Mulund plant.
However, in the U.S., Johnson & Johnson has received FDA approval on the company’s Sedasys device, which could sedate patients for some tests without an anesthesiologist. Johnson & Johnson (NYSE:JNJ) CEO Alex Gorsky commented that its new device, which will be available next year, was “a great way to improve care and reduce costs.” Indeed, some glitches might happen with Johnson & Johnson in some parts of the world. However, with its global leading positions in the healthcare field and its ongoing R&D efforts, Johnson & Johnson (NYSE:JNJ) could do well in a long run.