Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Allergan, Inc. (AGN): Is It Worth Looking At?

Allergan, Inc. (NYSE:AGN)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.

Business snapshot

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.

Novartis got sued

Novartis AG (NYSE:NVS) is also has a lower EV multiple than Allergan, Inc. (NYSE:AGN). The company is trading at $73.50 per share, with the total market cap of $180.6 billion. The company is valued at 11.4 times EV/EBITDA. According to the New York Times, at the end of April, Novartis was sued by the U.S. government, accusing the company of paying millions in kickback money to doctors in exchange for its drugs, including hypertension drugs Lotrel and Valturna, and the diabetes drug Starlis, being prescribed. In return, Novartis AG (NYSE:NVS)’ spokeswoman Julie Masow commented that Novartis would dispute the claims and defend itself.

Even after the legal issues, Novartis AG (NYSE:NVS)’ share price has consistently kept going up to nearly $73.50 per share. In February, it paid out more than $2.40 per share in dividends. Thus, the dividend yield stays at nearly 3.3%. Johnson & Johnson offers investors a bit lower dividend yield at 3.1% while the dividend yield for Allergan, Inc. (NYSE:AGN) is very small, at only 0.2%.

My Foolish take

Investing in the pharmaceutical industry is not easy. The results of the potential future pipelines of each company are uncertain. If potential growth is factored in, Allergan, Inc. (NYSE:AGN) seems to be the best pick with the lowest PEG at only 1.57% while the PEG ratios for Johnson & Johnson (NYSE:JNJ) and Novartis AG (NYSE:NVS) are much higher, at 2.42% and 2.73%, respectively. However, investors might feel much safer with Johnson & Johnson and Novartis because of their huge sizes, market leading positions and decent dividend yields.

The article Should We Get Bullish on This Fast Growing Healthcare Company? originally appeared on

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.