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