Healthcare Business

Why Mallinckrodt Shares Could Double

Source: Thinkstock
Mallinckrodt PLC (NYSE: MNK) has been making waves in the market recently related to its guidance and it has caught the attention of one key analyst. Oppenheimer weighed in on Mallinckrodt in its most recent report where it issued an Outperform rating with a $138 price target.

The company set guidance for fiscal 2016 earnings per share (EPS) as $7.70 to $8.20 which is in line with what Oppenheimer is forecasting ($7.95). However the firm believes there is an upward surprise to what the current stock price had implied. Thomson Reuters has a consensus estimate of $8.00 in EPS for fiscal 2016.

Management also reiterated its conviction around Acthar longevity following recent competitive announcements and maintained growth optimism for the Ikaria and Therakos acquisitions. The company will be opportunistic with future M&A but now also increasingly has share buybacks at its disposal. Oppenheimer believes the recent pessimism and share price have overshot to the downside, but management will have to show positive execution steps over the coming months to push sentiment back in the right direction.

While the base business outlook was weaker than expected, overall guidance was strong and highlighted optimism for growing Acthar and Ofirmev and a strong start to Inomax and Therakos.

The reaction seen Tuesday was likely overrun by the broad negative moves across both biotech and spec pharma, following more pricing headlines and apparent reluctance for new money to be put to work. While it’s tough to call a sector bottom, Oppenheimer thinks Mallinckrodt is decently positioned for a rebound.

The solid guidance helps with valuation optics around the stock, but with growth coming from the more controversial product lines, execution will be closely followed by investors. Given lack of intraquarter visibility into recent acquisition products, earnings are most important catalysts.

Near-term events to look forward to for Mallinckrodt include Acthar data in lupus. The company will report fiscal fourth quarter earnings on November 23, which will include a discussion of Phase 4 Acthar lupus data presented at ACR on November 8. It will then hold a full investor day in New York City on December 7 featuring a comprehensive pipeline review.

Shares of Mallinckrodt were up 4.4% at $65.74 on Wednesday afternoon. The stock has a consensus analyst price target of $123.85 and a 52-week trading range of $56.57 to $134.26.

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