Mylan shares to rally nearly 60 percent as EpiPen controversy fades: Raymond James

Published Mon, Oct 10 201610:27 AM EDT

Raymond James on Monday upgraded shares of Mylan to strong buy from market perform, citing valuations that have reached a multidecade low after the debacle around EpiPen pricing. "The basis for the upgrade is valuation driven, as negative headlines around EpiPen pricing practices and concerns over deteriorating generic pricing have driven multiple levels to 20-year lows," wrote equity analyst Elliot Wilbur. After Mylan's announcement of a $465 million settlement with the Department of Justice on Friday, analysts at Raymond James believe a major overhang on the stock has been removed, allowing investors to once again focus on fundamentals. "While the penalty is costly, the settlement is diminutive relative to the company's financial wherewithal and will effectively relegate the great EpiPen pricing debate to the back pages of history over the weeks and months ahead," Wilbur forecasts. "Depressed absolute and relative valuation levels and deep oversold condition of shares set up favorable reward-risk scenarios even in [a] more tempered EPS growth environment resulting from lower EpiPen profits and increasingly unfavorable pricing trends in U.S. generics," he said. Since reaching a 52-week high in December, shares of the biopharmaceutical company have plunged 35 percent, with the stock trading at around 6.9 times forward earnings, just 8 percent above a 20-year low, according to estimates by Raymond James. Source: FactSet With the DOJ settlement reached, the investment firm predicts the stock could trade as high as $57 in the next 12 months, implying a gain of nearly 59 percent from Friday's close. A combination of valuations returning to normalized historic levels, Mylan's ability to "grind out approvals" in its core generic drugs business, along with the company's earnings power and cash flow generation, should allow the stock to rally from here, Wilbur told clients. Shares of Mylan were up 11 percent in early trading Monday. — CNBC's Michael Bloom contributed to this story.

Jim Bourg | Reuters

Raymond James on Monday upgraded shares of Mylan to strong buy from market perform, citing valuations that have reached a multidecade low after the debacle around EpiPen pricing.

"The basis for the upgrade is valuation driven, as negative headlines around EpiPen pricing practices and concerns over deteriorating generic pricing have driven multiple levels to 20-year lows," wrote equity analyst Elliot Wilbur.

After Mylan's announcement of a $465 million settlement with the Department of Justice on Friday, analysts at Raymond James believe a major overhang on the stock has been removed, allowing investors to once again focus on fundamentals.