Mylan Stock Has Over 45% Upside

by Trefis Team
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Going by the historical performance, we believe that the stock price of Mylan (NYSE: MYL), a pharmaceutical company best known for its generic drugs, could offer an upside of over 45% from the current levels. MYL stock trades at $15 currently and it is down 35% from the pre-Covid high of $23 seen in February. Also, MYL stock has declined 2% from the low of $16 seen in March 2020, significantly underperforming the broader markets, with the S&P500 seeing a 53% rise over the same period, as the Fed stimulus largely put investor concerns about the near-term survival of companies to rest.

For Mylan, the sales have trended better than many of the other pharmaceutical companies in this pandemic, as we discuss in the sections below. Mylan’s integration with Pfizer’s Upjohn division will help the company expand geographically, as Upjohn has a strong leadership position in China and emerging markets while Mylan has a significant presence in the U.S. and Europe. In view of the economic growth and with a vaccine in sight for the coronavirus, we believe that MYL stock has more than 45% upside in the near future. Our conclusion is based on our detailed analysis of Mylan stock performance during the current crisis with that during the 2008 recession in an interactive dashboard analysis.

2020 Coronavirus Crisis

Timeline of 2020 Crisis So Far:

  • 12/12/2019: Coronavirus cases first reported in China
  • 1/31/2020: WHO declares a global health emergency.
  • 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
  • 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, as Covid-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid a Saudi-led price war
  • From 3/24/2020: S&P 500 recovers 56% from the lows seen on Mar 23, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.



In contrast, here’s how Mylan and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

  • 10/1/2007: Approximate pre-crisis peak in S&P 500 index
  • 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
  • 3/1/2009: Approximate bottoming out of S&P 500 index
  • 1/1/2010: Initial recovery to levels before accelerated decline (around 9/1/2008)

Mylan vs S&P 500 Performance Over 2007-08 Financial Crisis

MYL stock declined from levels of around $17 in September 2007 (pre-crisis peak) to levels of around $12 in March 2009 (as the markets bottomed out), implying MYL stock lost 25% from its approximate pre-crisis peak. It recovered post the 2008 crisis, to levels of about $18 in early 2010, rising by a massive 48% between March 2009 and January 2010. In comparison, the S&P 500 Index saw a decline of 51% followed by a recovery of 48%.

Mylan’s Lackluster Fundamentals In Recent Years 

Mylan’s Revenue grew slightly from $11.1 billion in 2016 to $11.5 billion in 2019. The company’s margins contracted from over 10% to <1%, resulting in a 97% EPS decline from $0.94 in 2016 to $0.03 in 2019. 2016 numbers though included gains of $672 million from a litigation settlement. On a Non-GAAP basis, Mylan’s earnings declined only 19% from $4.89 to $4.42 per share. However, given the impact of the Covid-19 pandemic, the company’s Q2 2020 revenues were 4.3% below the level seen a year ago, and the EPS figure for the quarter slid from $1.11 in Q2 2019 to $1.03 in Q2 2020.

Does Mylan Have A Sufficient Cash Cushion To Meet Its Obligations Through The Coronavirus Crisis?

Mylan’s total debt has decreased from around $15.5 billion in 2016 to $12.2 billion at the end of Q2 2020, while its total cash decreased from $999 million to $324 million over the same period. The company also generated $671 million in cash from its operations during the six month period ending June 2020, and it appears Mylan will weather the current crisis.

CONCLUSION

Phases of Covid-19 crisis:

  • Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
  • Late-March 2020 onward: Social distancing measures + lockdowns
  • April 2020: Fed stimulus suppresses near-term survival anxiety
  • May-June 2020: Recovery of demand, with the gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases.
  • July-October 2020: Poor Q2 results and lukewarm Q3 expectations, but continued improvement in demand, a decline in the number of new cases, and progress with vaccine development buoy market sentiment.

Going by the historical performance and in view of the no-growth seen in MYL stock since March, we believe that Mylan stock has over 45% room for growth in the near future.

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