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Allergan (AGN) Up 4.5% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Allergan (AGN). Shares have added about 4.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Allergan due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Allergan Meets Q3 Earnings Estimates, Ups ’19 Sales View

Allergan’s third-quarter adjusted earnings came in at $4.25 per share, in line with the Zacks Consensus Estimate. Earnings were flat year over year as higher revenues were offset by lower operating profits.

Revenues came in at $4.05 billion, which exceeded the Zacks Consensus Estimate of $3.89 billion. Revenues rose 3.6% from the year-ago quarter as higher sales of key products like Botox (cosmetic and therapeutics), Juvéderm collection of fillers, Vraylar, Ozurdex, and Lo Loestrin made up for the loss of exclusivity on some brands and divestitures of some others.

Segment Discussion

Allergan reports revenues under three segments – U.S. General Medicine, U.S. Specialized Therapeutics and International.

U.S. Specialized Therapeutics’ net revenues declined 2.1% to $1.67 billion. Strong demand for its facial aesthetics products, Botox and Juvéderm and Botox Therapeutic was offset by decline in sales of Restasis and divestiture of Medical Dermatology business in September 2018. Sales of CoolSculpting and Alloderm also declined in the quarter.

In Facial Aesthetics, Botox (cosmetic) recorded sales of $237.6 million, up 10% year over year. Juvéderm collection of fillers rose 6% to $134.8 million.

Alloderm sales, however, fell 10.2% to $95.0 million while CoolSculpting sales of $53.0 million declined 37.6% year over year. Allergan expects to launch the CoolTone body contouring device in fourth quarter 2019, which can revive sales of this aesthetics franchise.

In Eye Care, while Ozurdex sales rose 17.8% to $33.7 million, Restasis sales fell 3.8% to $286.8 million. A generic version of Restasis is expected to be launched this year.

Botox Therapeutic revenues were $431.6 million, up 5.9% year over year.

U.S. General Medicine net revenues were up 9.9% year over year to $1.52 billion in the reported quarter as strong demand growth of Vraylar, Viibryd and Lo Loestrin was offset by lower sales of drugs that lost exclusivity.

Vraylar sales were $234.6 million in the third quarter, 70% higher than the year-ago quarter. In May, Vraylar was approved for the new indication of bipolar depression, which may have contributed to higher sales of the drug in the quarter.

Linzess sales rose 4.8% to $214.7 million. Lo Loestrin sales grew 14.1% to $161.4 million while Bystolic sales rose 0.7% to $152.2 million. Viibryd sales were $105.1 million, up 18.8% from the year-ago quarter.

The International segment recorded net revenues of $835.1 million, up 5% from the year-ago period, excluding the impact of foreign exchange as growth in Facial Aesthetics and Botox (therapeutic) was partially offset by regulatory changes for textured breast implants and lower glaucoma and eye drop revenues.

Profits Decline

Adjusted gross margin declined 100 basis points (bps) in the quarter to 84.2%.  Adjusted operating income decreased 7.7% to $1.76 billion in the third quarter due to LOEs, divestitures and higher costs.

Selling, general and administrative expenses increased 14.3% to $1.18 billion in the third quarter, owing to higher marketing spending to support product launches.

Research and development (R&D) expenses rose 14% to $448.9 million due to pipeline progress.

2019 Outlook

Allergan slightly raised its sales guidance for 2019 to account for the delay in Restasis generic while maintaining the previously issued earnings view.

Allergan expects sales to be in the range of $15.63-$15.83 billion, up from the previous guidance of $15.43-$15.63 billion. The company still estimates adjusted earnings to be more than $16.55 per share.

Adjusted tax rate is expected to be approximately 12%-12.5% versus prior expectation of approximately 13% in 2019. Adjusted R&D expense guidance was increased from a range of $1.6 - $1.7 billion to $1.75 billion while the SG&A range was increased from $4.4 - $4.5 billion to $4.5 billion. Adjusted gross margin is expected to be 85% (previously 85%-85.5%).

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 5.41% due to these changes.

VGM Scores

At this time, Allergan has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Allergan has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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