Does Mylan Have Upside Potential?

With shares of Mylan (NASDAQ:MYL) trading at around $27.85, is MYL an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Mylan is in the right industry at the right time, but can Mylan hold up if there is a steep market correction ahead? We’ll get to that later. For now, let’s take a look at the impressive list of positives for Mylan:

  • Consistent revenue and EPS improvements on an annual basis
  • Global leader in generics
  • Recently launched generic version of Zovirax ointment (more on this below)
  • More than 175 pending drug applications
  • Growing presence in emerging markets
  • Highly innovative company
  • More than 1,000 products worldwide

In regards to the launch of the generic version of Zovirax, here is more information on the drug:

Treats herpes virus infections, including shingles (herpes zoster) and genital herpes (herpes simplex). Also treats chickenpox. This medicine will not cure herpes, but may prevent a breakout of herpes sores or blisters.

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As far as negatives for Mylan are concerned, they include pricing pressure and currency fluctuations.

Let’s get to some comparative numbers. The chart below compares fundamentals for Mylan, Actavis (ACT), and Teva Pharmaceuticals Industries Limited (NYSE:TEVA). Mylan has a market cap of $11.02 billion, Actavis has a market cap of $12.38 billion, and Teva has a market cap of $32.91 billion.

MYL

ACT

TEVA

Trailing   P/E

18.33

127.38

17.07

Forward   P/E

8.68

10.71

17.01

Profit   Margin

9.43%

1.65%

9.66%

ROE

18.74%

2.65%

8.45%

Operating   Cash Flow

$949.02 Million

$665.80 Million

  $4.57   Billion

Dividend   Yield

N/A

N/A

2.70%

Short   Position

8.90%

1.00%

N/A

 

Let’s take a look at some more important numbers prior to forming an opinion on this stock…

E = Equity to Debt Ratio Is Weak

The debt-to-equity ratio for Mylan is weaker than the industry average of 0.60. This is slight cause for concern, but Mylan should be able to improve on this number if the industry remains strong.

Debt-To-Equity

Cash

Long-Term Debt

MYL

1.71

$409.54 Million

$5.74 Billion

ACT

1.67

$328.00 Million

$6.43 Billion

TEVA

0.64

$2.88 Billion

$14.72 Billion

 

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T = Technicals Are Mixed

Mylan has performed well over the past three years, but momentum has slowed.

1 Month

Year-To-Date

1 Year

3 Year

MYL

-8.56%

1.49%

26.06%

28.09%

ACT

5.81%

12.69%

45.10%

127.80%

TEVA

-5.93%

3.56%

-12.86%

-35.13%

 

At $27.85, Mylan is trading below its 50-day SMA and 100-day SMA, but above its 200-day SMA.

50-Day   SMA

29.37

100-Day   SMA

28.55

200-Day   SMA

26.14

 

E = Earnings Have Been Strong            

Revenue and earnings have consistently improved on an annual basis. To see continued improvements in 2012 is a big plus considering many companies throughout the broader market slowed down last year.

2008

2009

2010

2011

2012

Revenue   ($)in   billions

5.14

5.09

5.45

6.13

6.80

Diluted   EPS ($)

-1.10

0.30

0.68

1.22

1.52

 

When we look at the previous quarter on a year-over-year basis, we see improvements in revenue and earnings.

12/2011

3/2012

6/2012

9/2012

12/2012

Revenue   ($)in   billions

1.53

1.59

1.69

1.81

1.70

Diluted   EPS ($)

0.30

0.30

0.33

0.51

0.38

 

Now let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Support the Industry

Generics is a hot industry, which is partially related to a weak consumer. More people are choosing generics over more expensive alternatives. The industry is expected to show continued growth.

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Conclusion

Mylan didn’t hold up that well during the financial crisis of 2008/2009, and there is no dividend to help investors through difficult times. Therefore, this isn’t likely to be the safest play in the world. However, the industry is stronger now than it was in 2008/2009, and Mylan shouldn’t offer a dividend due to its current debt situation. Still, Mylan is a WAIT AND SEE. Actavis is likely to be more resilient to bearish stock market conditions.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

Disclosure: All content posted represents my opinion and views and should never be considered professional advice. You should do your own research and consult with a professional financial advisor before making any investment decisions. I am currently short technology, financials, the Russell 2000, and the euro.