Allergan investors still too 'skeptical' about a Pfizer merger, analyst says

Shortly after Pfizer ($PFE) and Allergan ($AGN) last week announced they'd be joining hands, the market "seemed pretty skeptical," in the words of Jim Cramer, host of CNBC's "Mad Money." Since then, Allergan's stock has rebounded--but the way Nomura analyst Shibani Malhotra sees it, investors still aren't wrapping their heads around the deal's potential long-term value.

As she wrote in a Monday note to clients, Allergan shares are currently trading 15.9% below the $370.53 value the merger implies, suggesting that "the combined entity remains underappreciated and un-reflected" in the Dublin drugmaker's price.

So what are investors failing to take into account? A few things, she wrote. First off, locating the new company in Ireland should enhance financial flexibility--a quality that could result in the pharma beefing up a dividend she says is currently overlooked. The current Allergan price reflects no more than $52 in dividends, she pointed out, and she estimates that Pfizer's stated dividend plan will offer $52.53 in present value.

Then, there's Pfizer's "far-reaching global footprint," she noted, which Allergan has said could help it penetrate key markets like China and Japan. Malhotra, for her part, highlighted opportunities in Asia for Allergan's ophthalmology meds and expansion of its gastroenterology franchise in Europe.

"All of these should drive operating leverage and provide upside to guidance," she wrote.

Allergan CEO Brent Saunders

To top it off, key Allergan execs--like current CEO Brent Saunders, set to take over the COO role, and chairman Paul Bisaro, who will take a seat on the new company's board--are planning to stay on after the deal closes, which "should enhance the sharing of cross-firm best practices and potentially provide for improved execution," Malhotra figured.

She's not alone in her thinking. As Saunders recently told Cramer, there's a lot to be gained now that the company is taking its "growth pharma" model and philosophy and putting it "on a larger chassis called Pfizer."

"Look, we could have gone to $400 [dollars per share] on our own, but this takes us well beyond that for the foreseeable future," he said.

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