Actavis (ACT) Marked As A Barbarian At The Gate

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Actavis ( ACT) as a "barbarian at the gate" (strong stocks crossing above resistance with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Actavis as such a stock due to the following factors:

  • ACT has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $523.6 million.
  • ACT has traded 2.1 million shares today.
  • ACT traded in a range 303.9% of the normal price range with a price range of $14.96.
  • ACT traded above its daily resistance level (quality: 529 days, meaning that the stock is crossing a resistance level set by the last 529 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Barbarian at the Gate' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying positive price action. In this case, the stock crossed an important inflection point; namely, 'resistance' while at the same time the range of the stock's movement in price is more than twice its normal size. This large range foreshadows a possible continuation as the stock moves higher.

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More details on ACT:

Actavis plc, an integrated specialty pharmaceutical company, is engaged in the development, manufacture, marketing, sale, and distribution of pharmaceutical products in the Americas, Europe, the Middle East, Africa, Australia, and the Asia Pacific. ACT has a PE ratio of 372.0. Currently there are 16 analysts that rate Actavis a buy, no analysts rate it a sell, and none rate it a hold.

The average volume for Actavis has been 2.3 million shares per day over the past 30 days. Actavis has a market cap of $63.9 billion and is part of the health care sector and drugs industry. The stock has a beta of 0.34 and a short float of 10.1% with 1.01 days to cover. Shares are up 40.2% year-to-date as of the close of trading on Monday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Actavis as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, compelling growth in net income and good cash flow from operations. However, as a counter to these strengths, we find that the company has favored debt over equity in the management of its balance sheet.

Highlights from the ratings report include:
  • The revenue growth greatly exceeded the industry average of 4.7%. Since the same quarter one year prior, revenues rose by 34.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Pharmaceuticals industry. The net income increased by 108.6% when compared to the same quarter one year prior, rising from -$564.80 million to $48.70 million.
  • ACTAVIS PLC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ACTAVIS PLC swung to a loss, reporting -$5.43 versus $0.75 in the prior year. This year, the market expects an improvement in earnings ($13.27 versus -$5.43).
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Pharmaceuticals industry and the overall market, ACTAVIS PLC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The debt-to-equity ratio of 1.27 is relatively high when compared with the industry average, suggesting a need for better debt level management. Even though the debt-to-equity ratio is weak, ACT's quick ratio is somewhat strong at 1.40, demonstrating the ability to handle short-term liquidity needs.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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