This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Beauty Stock Shakeout

This column was originally published on RealMoney on Dec. 12 at 2:01 p.m. EST. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here .

Growing appreciation for the long-term potential of the aesthetic market has lifted the fortunes of the three major players in this space, Allergan (AGN), Mentor (MNT) and Medicis Pharmaceutical (MRX).

The shares of all three have performed well with about 10% gains year to date. More recently, the performance of Allergan and Mentor has begun to improve with the FDA's long-awaited approval of silicone-gel breast implants in late November.

I expect these companies to show improved top- and bottom-line momentum in '07 as a result of this key product approval. I believe the diverse and improving growth platforms of Allergen and Mentor offer greater investment appeal and lower risk profiles compared with those of Medicis.

The table below shows that the forward valuations of the three stocks in this group have all moved well above the specialty pharma group average at about 40 times this year's and 30 times next year's earnings. The group's near-term growth outlook is stronger than the industry average, but the risks have risen at these valuation heights, particularly if trends start to slow. However, the prospect for accelerating growth at Mentor and Allergan should continue to support their hefty share valuations.

Conversely, I expect the valuation and earnings performance of Medicis to come under pressure in the face of upcoming marketing challenges for its key Restylane franchise and a shortage of additional growth drivers.

Primed for Growth

Medicis shares plummeted in June on news of the earlier-than-anticipated approval of Allergan's Juvederm. This product competes with Medicis' important Restalyne product line in the dermal-filer segment. Medicis shares have since recovered and are now about 40% above mid-summer levels, despite the coming full-scale launch of Allergan's Juvederm in January.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
MRX $0.00 0.00%
AGN $240.22 1.21%
AAPL $130.28 0.47%
FB $81.53 -1.07%
GOOG $565.06 3.30%

Markets

DOW 18,080.14 +21.45 0.12%
S&P 500 2,117.69 +4.76 0.23%
NASDAQ 5,092.0850 +36.0220 0.71%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs