Shares of pharmaceutical company Allergan (AGN) received a much needed shot in the arm Tuesday morning following the revelation that activist investor Carl Icahn acquired a "large position" in the company.
Shares were up 1.3% on heavy volume Tuesday morning, possibly setting the course for the Action Alerts PLUS holding to reverse a more than 20% year-to-date decline.
"We have recently acquired a large position in Allergan and are very supportive of CEO Brent Saunders. We were instrumental in bringing Brent on board as the new CEO of Forest Labs a few years ago and worked cooperatively and constructively with him to help increase value for all Forest shareholders," Icahn wrote on his website today.
Jim Cramer and Jack Mohr, co-portfolio managers of the Action Alerts PLUS charitable trust, are long AGN and they view this move as an incremental positive thanks to the high profile, and often combative, nature of Icahn's investments.
"Although Icahn has a history of taking an active approach towards the companies he invests in, the statement he released is vocally supportive of management, noting 'we have every confidence in Brent's ability to enhance value for all Allergan shareholders,'" Cramer and Mohr wrote. "We largely look past the Icahn announcement and continue to reiterate our constructive view long-term, and are focused on our expectation for value creation upon completion of AGN's generics sale to Teva (TEVA)."
Even before today's news, Real Money chartist Timothy Collins was bullish on the company's prospects Monday, suggesting a $268 price target.
"Allergan felt left for dead in April, but May seems to have brought this one back from the dead. Just a zombie or maybe Frankenstein's monster ready to romp on those pesky bear mobs? I'm voting the latter here. AGN saw its shares plummet more than 40% from last August highs to this May's lows. We've bounced some 20% off the intraday lows of early May, but there still appears plenty of room to run if AGN can get a close over resistance of $236," Collins wrote.
Collins, Cramer and Mohr weren't the only Real Money contributors to take a bullish stance on Allergan recently.
Seabreeze Partners Management's Doug Kass established a position in the company a week ago as part of a four-stock "biotech basket," because Kass believes that the biotech sector is about to bounce back from its recent losses.
"I've previously written that I've been poised to buy biotechs again, but that I wanted to see some more evidence of price confirmation," Kass wrote in the Dialy Diary on Real Money Pro March 24. "After a brutal nine-month period of underperformance, the iShares Nasdaq Biotechnology ETF (IBB) appears to have possibly put in a 'double bottom.' The ETF breached $400 to the upside 10 months ago before tumbling to around $249 intraday on May 12. But today, IBB was up some $4 at last check to about $270."
AGN is undervalued amid its recent downturn when considering its annualized sales/earnings growth trajectory of 10% and 15%, respectively, according to Cramer and Mohr. The company's fundamentals appear strong to the analysts.
"Ultimately, we expect an upward revision in AGN's valuation multiple following the completion of the deal as 1) the business model further distances itself from specialty pharma and speculative pharma peers; 2) uncertainty overhang is lifted; and 3) management unlocks capital deployment opportunities," Cramer and Mohr concluded.