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James Li
James Li
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March Forum Update: 'Pharmaceutical Companies' Edition

A discussion of 2 health care companies with low valuations but modest quality

March 29, 2018 | About:

Throughout March, our GuruFocus Forum users shared comments about the value and growth potential of several pharmaceutical companies, including Valeant Pharmaceuticals International Inc. (VRX) and Allergan PLC (NYSE:AGN).

While the two companies have low valuations, Valeant has low financial strength while Allergan has moderate profitability.


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.


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.

About the author:

James Li
I am an editorial assistant and researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

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