This Day On The Street
Continue to site right-arrow
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
TheStreet Open House

Analysts Get Hooked On Watson After Actavis Drugs Deal

NEW YORK ( TheStreet) -- Although Watson Pharmaceuticals' (WPI) acquisition of Swiss generic drug maker Actavis was expected for over a month, a strong reaction to Wednesday's deal shows that analysts are hooked on the drugs maker.

In a push to become a top generics manufacturer with a bolstered presence in fast-growing international markets, Watson Pharmaceuticals is buying Actavis for $5.6 billion. While the price is roughly $1 billion below initial reports of a tie-up -- even when including incentives could push the deal roughly $300 million higher -- analysts are upping their outlook on Watson Pharmaceuticals as a result of higher earnings growth expectations.

Even after shares surged in reaction to Wednesday's merger, many expect bigger gains to come as Watson Pharmaceuticals grows into the third leading generic drug manufacturer, while boosting its profit margins and growth profile.

"In our view, the deal is extremely compelling strategically and financially. It transforms WPI into a global generics leader with new strength in attractive markets, bolsters long-term growth, and creates substantial value for WPI shareholders," wrote Credit Suisse analyst Mike Faerm in a note to clients analyzing the merger.

Faerm boosted his price target for Watson Pharmaceuticals from $73 to $98, a 34% increase, on expectations that the tie-up will add $3.49 to the company's earnings per share by 2015, after benefits are realized. Those expectations reflect far higher EPS growth that Faerm initially forecast when deal rumors were first reported by Reuters in late March, reflecting bullish management projections in yesterday's announcement.

"Several financial aspects of the deal exceeded our (and we think the market's) expectations," added Faerm, noting Watson's forecasts of $300 million in synergies, a 28% tax rate and an interest expense of 4.5%, as a result of the merger.

The deal is structured so that the company will an make initial cash payment of 4.25 billion euros $5.6 billion and will deliver a bonus of up to roughly $300 million in 2013 if all M&A targets are met. That would push the deal to roughly $5.9 billion, below initial reports as high as $7.3 billion and expectations by Faerm of a $6.9 billion merger.

1 of 3

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
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
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
WPI $85.73 0.00%
MYL $61.63 0.00%
TEVA $61.98 0.00%
AAPL $123.25 0.00%
FB $83.30 0.00%

Markets

DOW 17,712.66 +34.43 0.19%
S&P 500 2,061.02 +4.87 0.24%
NASDAQ 4,891.2190 +27.8570 0.57%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs