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|
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV