Mylan : 4Q BRINGS UPSIDE AND THE MUCH ANTICIPATED DEAL

I Am Fluent In Three Languages ...item 1.. For...

I Am Fluent In Three Languages …item 1.. For-Profit Colleges Pay Executives Based On Profit (07/27/2012 ) …item 2.. RACE TO THE BOTTOM (Thursday, July 5, 2012) …item 3.. Senator Harkin’s Report: (JULY 29, 2012) … (Photo credit: marsmet523)

MYL : NASDAQ : US$28.57
BUY 
Target: US$33.00

COMPANY DESCRIPTION:
Mylan, Inc. (MYL) engages in the global development, marketing and producing of generic and brand pharmaceutical products. It operates two segments, Generics and Specialty, with branded drugs such as EpiPen Auto-Injector, Performist Inhalation Solution, and antiretroviral (ARV) drugs. It is headquartered in Canonsburg, Pennsylvania.

MYL’s 4Q results and 2013 guidance brought upside and raised guidance as expected. However, focus will be on the $1.6 billion announced Agila
deal.

Agila brings an attractive injectables platform and moderate accretion though, like many, we were surprised at the limited financial disclosure which will leave lingering questions and a wider range on pro forma Street EPS. Overall, we’re raising standalone EPS and increasing our target to $33.
 4Q and 2013 outlook largely as expected. 4Q brought a penny of costdriven upside while 2013 guidance largely straddled consensus with
revenue lowered and EPS raised (EMEA a positive surprise).
 Agila is 5-7% accretive in 2014-16 on our analysis. 2014 pro forma EPS will be the primary focus and our $3.32 is driven by 3% core upside and 5% deal accretion.
 Where do we go from here? Raised guidance and major deal announcement were the two primary catalysts we were looking for. Focus will now shift to 2014 with catalysts and EPS upside the primary drivers for both MYL and ACT. Assuming a modest upward stock move in MYL, valuation would be ~ in line with ACT (on our 2014 pro forma EPS) – we see upside in both but all else equal more near-term stock moving catalysts in ACT.
 We are raising our target to $33. Our raise reflects both higher 2014 standalone EPS (+3%) and accretion (+5%) though we for now leave
Agila out of published EPS. Our PT is based equally on 2014E P/E and EV/EBITDA and implies a 10x multiple on pro forma 2014E EPS.

Encanna and Devon – Joint Ventures LNG

Devon Energy Center under construction, from t...

Devon Energy Center under construction, from the northwest. (Photo credit: Wikipedia)

Encana* (ECA ) :  $19.60

Encana  announced yesterday that it will look to accelerate the commercialization of its oil and liquids-rich plays through joint ventures (JV). ECA talked about this at the LNG Summit in Singapore

 

The JV expectation is already in the marketplace given it wants a deal similar to the $2.5 billion JV Devon Energy (DVN) struck with Sinopec (SNP) , which involved:

 1) SNP to reimburse Devon for drilling costs incurred prior to closing and acreage acquisition costs incurred subsequent to the effective date of the agreement;

 2) SNP to make a $900-million cash payment upon closing and $1.6 billion paid in the form of a drilling carry. The drilling carry will fund 70% of Devon’s capital requirements, which results in SNP paying 80% of the overall development costs during the carry period;

 1) Based on the current work plan, Devon expects the entire $1.6 billion carry to be realized by year-end 2014;

 2) Devon will serve as the operator and will have ultimate responsibility for the allocation of capital. The company is also responsible for commercially marketing all production from these plays into the North American market. Devon said it had tremendous interest during its data room process, and

 ECA will experience the same level of interest. The acreage across the Tuscaloosa, the Utica/Collingwood, the Eaglebine and the Mississippi Lime was quoted in the press release to be ~ 1.2 million net acres, which is larger than the ~900,000 net acres we were estimating in prior research.

Given ECA’s large acreage position,  it can do a JV of similar size to the Devon/Sinopec deal. He updated the Devon/SNP JV implied value across the JV targeted acreage of ECA on a 100% basis.

 ECA plans to host an investor day on June 21 to highlight its resource potential within its oil and liquids-rich plays.

 

 

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