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Mallinckrodt Nuclear Biz Sale A Positive In BMO's View, Maintains Outperform

MNK - Mallinckrodt Nuclear Biz Sale A Positive In BMO's View, Maintains Outperform

BMO Capital’s Gary Nachman believes the recently announced sale of the nuclear imaging business by Mallinckrodt PLC MNK 2.41% might be dilutive to the company’s EPS but is likely to be accretive to the company’s overall growth and margins.

Nachman reiterated an Outperform rating on the company with a price target of $93.

Impact Of Sale

“As a result of this transaction we are moving the nuclear business from MNK's continuing operations into discontinued ops beginning calendar 3Q16. This removes revenue of roughly $400 million per year at an operating margin of roughly 20–30 percent,” the analyst explained.

Nachman believes management has proven its ability to manage capital and was likely to be able to create additional value through the cash from the sale of the nuclear imaging business.

“MNK recently indicated that at the end of 2016 it will be shifting to a calendar year-end from a fiscal year ending in September,” the analyst mentioned.

Estimates Lowered

As a result of this, along with some minor adjustments to the generics and Acthar franchises, Nachman has lowered the estimates for Mallinckrodt’s continuing operations.

The revenue and EPS estimates for 2016 have also been lowered.

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DateFirmActionFromTo
Aug 2016BarclaysMaintainsOverweight
Aug 2016Piper JaffrayMaintainsOverweight
Aug 2016Stifel NicolausInitiates Coverage onBuy

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