Throughout March, our GuruFocus Forum users shared comments about the value and growth potential of several pharmaceutical companies, including Valeant Pharmaceuticals International Inc. (VRX, Financial) and Allergan PLC (AGN, Financial).
While the two companies have low valuations, Valeant has low financial strength while Allergan has moderate profitability.
Valeant
Although the company’s price-earnings ratio is near a 10-year low of 2.22, Valeant continues to show poor financial strength. Not only does the company have weak Altman Z-scores, Valeant also has a high debt-to-EBITDA ratio of 13.74 and interest coverage well below Ben Graham’s required threshold of 5.
The Canadian company disclosed Tuesday it had closed its previously announced senior notes offering of $1.5 billion, according to filing with the Securities and Exchange Commission. Although the company paid down approximately $4.8 billion in debt over the past year, the above press release suggests Valeant is likely to issue more long-term debt in the upcoming quarters.
Allergan
Like Valeant, Allergan also has low valuations, including a price-book ratio of 0.8, a price-to-free cash flow ratio of 11.38 and a price-to-operating cash flow ratio of 11.38. The company’s price valuations rank higher than over 80% of global competitors.
Despite low valuations and strong revenue growth, Allergan has negative profit margins: not only does the company’s operating margin underperform 82% of global competitors, the margins have been negative since 2014.
See also
Premium members can view a list of all health care companies through our All-in-one Screener. You can then look for high-quality pharmaceutical companies using the “High Quality” screener or your personal investing screen.
We unfortunately did not have a top Forum post for March. Please continue helping us expand our Forum: you can write posts on the latest news from Warren Buffett (Trades, Portfolio) and value investing in general.
Disclosure: No positions.
