Raising the White Flag on Allergan

Nov 2, 2017 ' 9:03 AM EDT
Stock quotes in this article:

I am selling Allergan plc (AGN) stock in premarket trading, eliminating my entire position, and taking the stock off of my Best Ideas List ($184.58).

I have reached this conclusion with some reluctance after carefully perusing the company's earnings release, listening to Allergan's conference call and the decision not to break up the company, acknowledgement of a modest reset lower of 2018-19 expectations, reflecting upon the controversial deal with the Saint Regis Mohawk tribe giving the group the patent rights to one of the company's key drugs, and watching CEO Brent Saunders' interview on "Mad Money."

I believe there may be more vulnerability to Allergan's 2018-19 outlook than suggested by management or believed by analysts. Management forecast more than $15 a share in 2018 EPS, though the consensus was $17.60 a month ago and is now $16.85, assuming mid-2018 introduction of a generic entry of Restasis, and for fiscal 2019 the company sees results better than 2017, which currently are estimated at about $16.20 a share. There now appears almost no chance for upward revisions in 2018-19 EPS.

I believe the U.S. stock market is overvalued and, accordingly, I must have a compelling reason and a positive reward vs. risk (upside vs. downside) to justify the retention of a stock.
 
Position: None

Originally published Nov. 2 at 9:03 a.m. EDT. Doug Kass fills his blog on RealMoney every day with his up-to-the-minute reactions to what's happening in the market and his legendary ahead-of-the-crowd ideas.

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