Even Following the Latest Surge, Mylan Stock Has Plenty of Room to Grow

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Whenever a stock shoots higher, value investors justifiably hesitate on trading it. The stock priced in the good news already, leaving few extra gains ahead. So when Mylan N.V. (NASDAQ: MYL) rose by over 15% on the week, the best thing investors may do before buying Mylan stock is to look at the quarterly earnings result in detail.

Mylan reported a 4% drop in revenue but better adjusted gross margin and adjusted net earnings. Expenses, including R&D and SG&A, as a percentage of total revenue, fell very slightly.

Overall, adjusted cash flow rose 6% Y/Y to $2.023 billion. Favorable working capital and lower capital expenditures led to better performance.

And similar to other generic drug firms, including Bausch Health Companies Inc. (NYSE: BHC) and Teva Pharmaceutical Industries Limited (NYSE: TEVA), Mylan continues to work off its debt obligations.

Debt, Revenue and Mylan Stock

Its debt-to-adjusted EBITDA leverage fell to 3.8 times. Mylan will continue de-levering its balance sheet by deploying its capital primarily against its debt. By the end of 2019, it will pay off $1.2 billion in debt at the very minimum.

Management has a long-term target of reaching an average debt-to-adjusted EBITDA leverage of three times.

Mylan recognizes the challenges in the sheer number of generics and branded drugs on the market but believes that the company is built to last. Management backed this confident view by committing to its full-year 2018 guidance. That is:

  • Revenue of $11.25 billion – $12.25 billion
  • Adjusted EPS of $4.55 – $4.90
  • Adjusted FCF of $2.1 billion to $2.5 billion

Many Product

Mylan is not just about EpiPens. The company launched 40 new products in North America, with two-thirds of that being injectables.

So far in 2018, it launched around 300 products in branded generic and over-the-counter. Just after earning approval, it is about to launch a biosimilar to Humira and an insulin analog in Europe.

Although it is a smaller part of its business, for now, Mylan has 130 new product launches in 2018 in the “rest of the world” segment.

Mylan continues to treatNorth America as a key market. Its strategy is providing a broad range of products and growing its market in the same way as with the other regions: launching new products and maintaining its market position.

Outlook On Mylan Stock

Investors already have Mylan’s 2018 outlook, so the stock very likely prices in most of the anticipated revenue and profits. Fundamentally, new product launches in Europe, which are weighted heavily in the second half of the year, could justify a P/E multiples expansion for shares.

But for the stock to go up on that basis, the biotechnology index needs to also go up, too. Mylan could set itself apart from the other drug stocks with its product launch schedule.

As new product sales ramp up in the quarters ahead, the stock will respond positively for shareholders.

As a point of reference, Mylan generated around $300 million in revenue as a result of new products in the third quarter. Half of that came from North America while the rest was split between Europe and Rest of World.

Valuation and Your Takeaway

Mylan stock saw much of the easy money made when it rallied following its earnings report. The harder gains will come over time if Mylan continues on its steady path of paying down debt, launching new products and keeping its expenses low.

Wall Street has an average price target of $42.33, or 16% upside, on MYL stock, according to Tipranks. That is a decent return despite the recent stock movement.

Disclosure: The author does not own shares in any of the companies mentioned.

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