Q1 Preview Scotia Re post from this morning ANALYST TEAM Link to ScotiaView HEALTHCARE Alan Ridgeway, Ph.D, MBA, CFA 416-863-7009 Scotia Capital Inc. - Canada Laura Carrigan, CPA, CA 416-863-7178 Scotia Capital Inc. - Canada PERTINENT DATA Rating Sector Outperform 1-Yr. Target US$55.00
CXRX-Q US$23.22 1-Yr.
Return 138.2% Div. (NTM) $0.30 Div. (Curr.) $0.30 Yield (Curr.) 1.3% Valuation: 10x 2017
EBITDA PERTINENT REVISIONS New Old Adj EBITDA (M)16E $603 $610 Adj EBITDA (M)17E $639 $650
Preview: Expecting a Bounce Back in North America and Continued Growth at AMCo OUR TAKE: CXRX is scheduled to report Q1/16 results Friday, May 13, before market open. We are expecting a solid quarter, driven mainly by a bounce back in North America versus Q4/15 and continued growth at AMCo, which will be included for the first time as a full quarter in Q1/16. Despite currency headwinds, we continue to believe AMCo's long-term growth potential will become more clear to the market as the company reports results throughout the year. As a result, we maintain our Sector Outperform rating and believe investors buying shares at current levels should benefit from both improving fundamentals and a "free option" on the possibility of a takeout should the Special Committee identify an attractive strategic alternative.
KEY POINTS We have revised our forecasts ahead of Q1 to account for recent TRx trends, the current FX environment, and our updated general outlook. In Q1, we expect the North American business to bounce back from a weaker-than-expected Q4/15 as (i) the plaquenil supply issues that pressured Q4 were addressed in Q1, (ii) Lanoxin AG's increased market share should translate into improved sales, (iii) Nilandron volumes stabilized, and (iv) the remainder of the product portfolio performed generally in line with our expectations. We expect the International business (AMCo) to grow QoQ, pro forma excluding FX impact. In USD terms, we expect the weaker British pound QoQ to negatively impact results; however, at the current GBP:USD rate of ~1.44, the pound is off its lows and should benefit CXRX over the remainder of the year compared with our previous forecasts. Our Q1 forecasts are for revenue of $227.3 million, adj. EBITDA of $139.3 million, and adj. EPS of $1.35 ( consensus is $226.7 million, $138.7 million, and $1.40, respectively). Our revenue estimate includes $82.0 million from North America, $142.7 million from AMCo, and $2.6 million from the Orphan Drugs segment. Our focus on the call will be largely operational as we do not expect management to comment on the work of the Special Committee of independent directors that was formed to look at strategic alternatives. That said, we believe CXRX could be attractive to potential buyers at the current share price, particularly if the buyer had a lower cost of capital and ability to refinance the debt, owned a company or product portfolio that could be merged into CXR, or wanted to acquire a company or product portfolio that could utilize CXRX's existing global infrastructure. At the current share price, we believe investors are getting the optionality of a potential takeout for free
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