Allergan (AGN) recently announced that it will be selling its generics unit to Teva (TEVA) for $40.5 billion in cash and stock in Teva. Both stocks popped on the news, and rightfully so. Teva gained control of a wildly popular generics pipeline, while Allergan raised capital to pay of its debt. Allergan's growth comes from acquiring companies, which puts a lot of debt on its balance sheet. By paying off its debt, the company can make even more acquisitions, and thus grow even more. I think that CEO Brett Saunders made the right move; one that makes his company apt to grow like a weed. Over the last year and a half, Allergan has been in a fantastic, bullish price channel. This channel is very healthy, having only a minimal amount of parabolic moves (which were later corrected). Slow and steady wins the race, after all. Additionally, like most long-term bullish uptrends, AGN consolidated before making its next leg higher. Superimposed in the picture below is the price channel, as well as the healthy pullbacks the stock has seen over the last 18 or so months. Zooming in to the last few days of Allergan's trading, there was a bull-flag created from the gap up after the news broke on Teva's acquisition of the company's generics. If you've read my posts before, you know that I think the bull-flag pattern is the most reliable chart pattern out there. The picture below shows the chart of AGN, this time superimposed is the bull-flag I spotted, Fibonacci ratios and a projected price target. With earnings scheduled to be released before the bell on August 6, I expect the 5th of August to be the final day of the stock's consolidation. I wouldn't be surprised to see AGN to retest $322, the previous ceiling for the stock. The $322 support level is drawn in gold, as well as the bull-flag.
There's a reason why it's drawn in gold - it's gold, it's consistent, it's a money chart! Following normal "bull-flag procedure," I measured the height of the flagpole, and measured it to be $32.23. Adding this value to the floor of support at $322 gives me a target price of $354.23, the acme of the blue line superimposed on the chart. Furthermore, I believe that this price target has some merit. If AGN were to trade at this price, it would represent approximately a 138.2% retrace from its high of $341. AGN may not get to $354.23 in a straight-shot; that would mean it has to pop 10% on earnings, no easy task for a $130 billion company. That said, I do think that AGN will see the $350s within two weeks after earnings, because that's the amount of time it took for the bull-flag to form. This is all in the near-term. I still think that Allergan can - and should - be trading at $412 a share.
0 Comments
Leave a Reply. |