First Quarter Highlights
On April 29, Mylan (MYL) reported first quarter fiscal 2010 earnings per share (EPS) of 20 cents, down from the year-ago earnings of 23 cents. On an adjusted basis, first quarter earnings came in at 36 cents, a couple of cents above the Zacks Consensus Estimate and well above the year-ago earnings of 33 cents.
Revenues increased 7% to $1.29 billion, mainly due to a positive foreign exchange (FX) impact. Excluding the favorable FX impact, revenues would have increased 2%.
Mylan reiterated its guidance for 2010. The EPS is expected in the range of $1.50 to $1.70 and the company expects to generate total revenues of $5.45 to $5.75 billion.
For a full coverage on the earnings, read: Mylan Tops, Backs Outlook
Agreement of Analysts
Following the release of first quarter results, estimate revision trends among the analysts depict a mixed trend for Mylan’s earnings in the forthcoming period. Over the last 30 days, 8 of the 14 analysts covering the stock have made downward revisions for the second quarter, with estimates for the third quarter 2010 and fiscal 2011 being lowered by 3 analysts. No such downward revision has taken place for fiscal 2010.
While only 3 analysts have increased their estimates for the June quarter, for the next quarter, fiscal 2010 and fiscal 2011, estimates have been raised by 7, 9 and 5 analysts, respectively.
Barring the June quarter, on balance, the analysts are quite optimistic about the future outlook. Mylan is one of the leading players in the generics market. Although sales declined in North America, it increased in other markets like Asia-Pacific and EMEA (Europe, Middle East & Africa).
Product launches during the March quarter were less than expected due to delays in approval from the US Food and Drug Administration (FDA). However, the company is confident of getting 45-50 approvals in 2010.
In addition, Mylan has announced that the impact of health care reform will be minimal and is already taken care of in the guidance. Moreover, the company is likely to benefit post 2014 when more than 30 million people in the US will be brought under the insurance bracket.
Although Mylan is working on improving its capital structure, we remain concerned about its high debt burden. At the end of the first quarter, the company had $5.1 billion in total long-term debt, up from $4.9 billion at the end of December 2009. Recently, the company decided to issue $1 billion of senior notes (due 2017 and 2020), which are expected to be used to prepay a portion of its outstanding loans.
Magnitude of Estimate Revisions
The magnitude of revisions is modest following the first quarter results. Overall, estimates for the June quarter have gone down by a penny to 38 cents, while third quarter estimates increased by a penny to 44 cents. Estimates for fiscal 2010 have increased by a couple of cents ($1.62) though 2011 estimates remain unchanged at $1.96.
Mylan Stays Neutral
Considering the estimate revision trends and the magnitude of revisions, we find that the outlook is positive from the September quarter. Mylan has been quite acquisitive in the past few years, which should help to expand its footprint in the non-US markets and drive long-term growth. Moreover, the company, being one of the leading players in several of its markets, holds immense potential since many blockbuster drugs are slated to lose patent exclusivity in the forthcoming period.
We have a Neutral recommendation on the stock, given the strong potential of the company, which is also supported by the Zacks Rank #3.
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