Mizuho Updates Ests on Mallinckrodt (MNK) Amid EpiPen Headlines; Affirms at 'Buy'

August 26, 2016 7:51 AM EDT
Get Alerts MNK Hot Sheet
Price: $53.61 +0.96%

Rating Summary:
    17 Buy, 4 Hold, 0 Sell

Rating Trend: Down Down

Today's Overall Ratings:
    Up: 11 | Down: 31 | New: 42
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Mizuho is updating estimates on Mallinckrodt (Nasdaq: MNK) following recent EpiPen news. The firm rates Mallinckrodt at Buy with a price target of $91.

The firm commented, MNK announced an agreement to divest its nuclear imaging business to IBA Molecular for total consideration of $690M, consisting of $574M cash, $77M contingent consideration, and $39M for assumption of long-term obligations (~1.7x sales). Management indicated it will classify the business as discontinued operations beginning 3Q:CY16 and expects the deal to close in 1H:CY17. We expect this deal to improve future operating margins, but are modeling dilution of $0.92 to CY:16 and $0.37 to CY:17 as we strip out all historical and forward-looking revenue and estimated expenses associated with this segment. The company plans to provide full restated historical figures in October.

On estimates: We expanded our model to include the calendar year quarters for 2017. Based on our discussion with mgmt, we estimate 60% gross margins for the discontinued imaging business, with ~$40M/quarter in related SG&A spend. Of this amount we kept ~$10M per quarter in the model for "reallocated costs". We also added $574M to our cash balance and slightly declined the Depreciation and Stock-Based Comp in our DCF model. We also added the Stratagraft product from MNK's recent Stratatech acquisition, with 2020 entry and a 60% risk adjustment.

For an analyst ratings summary and ratings history on Mallinckrodt plc click here. For more ratings news on Mallinckrodt plc click here.



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