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Mylan (MYL) Down 12.9% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for Mylan (MYL). Shares have lost about 12.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Mylan due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Mylan Beats on Q2 Earnings, Inks Deal with Pfizer

Mylan reported adjusted earnings of $1.03 per share in the second quarter of 2019, which beat the Zacks Consensus Estimate of 95 cents but declined from $1.07 in the year-ago quarter.

Second-quarter revenues of $2.85 billion easily beat the Zacks Consensus Estimate of $2.82 billion and was up 2% from the prior-year quarter.

Quarter in Detail

The company posts results in three segments on a geographic basis — North America, Europe and Rest of World.

North America segment’s net sales came in at $1.023 billion, up 2% year over year, driven by new product sales, partially offset by lower volumes of existing products. New product sales were primarily driven by sales of Fulphila (biosimilar to Neulasta) and Wixela Inhub, the generic of GlaxoSmithKline’s Advair Diskus.

Net sales in the Europe segment were $989.6 million, down by a million due to unfavorable impact of foreign currency translation and lesser extent pricing. The unfavorable impact of foreign currency translation was offset by new product sales, including Hulio and the TOBI Podhaler, and higher volumes of existing products. 

Rest of World segment’s net sales of $805.2 million were up 5% primarily driven by products sold in China and new product sales in Australia and emerging markets.

Adjusted gross margin expanded to 54% from 53% in the year-ago quarter.

2019 Guidance

The company reaffirmed its guidance for 2019. Revenues are projected between $11.5 billion and $12.5 billion. The company anticipates adjusted EPS of $3.80-$4.80. It targets to repay $1.1 billion of debt by the end of the year.

Deal with Pfizer

Concurrent with the quarterly results, Mylan announced a merger agreement with Upjohn, Pfizer's off-patent branded and generic established medicines business (includes Lipitor, Celebrex and Viagra), to create a new global pharmaceutical company.  Per the agreement, which is structured as an all-stock, Reverse Morris Trust transaction, each Mylan share would be converted into one share of the new company.

Pfizer’s shareholders would own 57% of the combined entity, while Mylan’s shareholders would own the remaining 43%. The transaction has been unanimously approved by the boards of both the companies.

The resultant will boast a diverse portfolio across many geographies and focus on key therapeutic areas. The new company is expected to generate revenues of $19-$20 billion for 2020. The combined entity will be renamed and rebranded, and led by Mylan's current chairman Robert J. Coury, who will serve as the executive chairman of the new company.
 

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

At this time, Mylan has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Mylan has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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