The Zacks Analyst Blog Highlights: Valeant Pharmaceuticals, Actavis, Mylan, Avanir Pharmaceuticals and Hanesbrands

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Apr 09, 2013, 09:30 ET

CHICAGO, April 9, 2013 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Valeant Pharmaceuticals (NYSE:VRX), Actavis Inc. (NYSE:ACT), Mylan's (Nasdaq:MYL), Avanir Pharmaceuticals Ltd. (Nasdaq:AVNR) and Hanesbrands Inc. (NYSE:HBI).

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Here are highlights from Monday's Analyst Blog:

Valeant Inks Deal with Actavis

Valeant Pharmaceuticals (NYSE:VRX) recently entered into an agreement with Actavis Inc. (NYSE:ACT). As per the agreement, effective immediately, Actavis will exclusively market and distribute an authorized generic of Valeant's Zovirax ointment.

The agreement allows Actavis to record all the net sales of the generic ointment while Valeant will receive a share of the same. The other terms of the agreement were not disclosed.

Actavis will also have the exclusive rights to co-promote Zovirax cream to obstetricians and gynecologists in the US by using its existing Specialty Brands sales and marketing structure.

In return, Valeant gained exclusive right to co-promote Actavis' Cordran Tape (flurandrenolide) in the US, which is indicated for treating inflammation and itching caused by skin allergic reactions, eczema and psoriasis.

Valeant will co-promote the drug using its dermatalogy sales and marketing structure for a co-promotion fee on sales.

We note that Zovirax (ointment) is indicated for the management of initial genital herpes and limited non-life threatening mucocutaneous herpes simplex infections in immuno-compromised patients.

Zovirax cream is indicated for the treatment of recurrent herpes labialis (cold sores) in patients above 12 years.

We believe that Valeant is now making efforts to somewhat offset the adverse impact of Mylan's (Nasdaq:MYL) recent launch of the first generic version of Zovirax ointment.

Mylan recently received approval from the US Food and Drug Administration (FDA) to sell the first generic version of Zovirax ointment.

Consequently, Valeant cuts its earnings guidance for 2013 as Zovirax accounted for 7% of Valeant's total revenue in 2012. Valeant estimates the launch of Mylan's generic version to adversely impact its bottom line on a cash basis by 30 to 40 cents in 2013.

Concurrent with the fourth quarter results in Feb 2013, Valeant reaffirmed its guidance provided in January. Earnings per share were then projected around $5.45 – $5.75.

Valeant intends to provide an updated guidance in May along with its first quarter 2013 results.

It remains to be seen if Valeant is able to shield its top-line growth following the entry of generics.

Valeant currently carries a Zacks Rank #3 (Hold). Right now, Avanir Pharmaceuticals Ltd. (Nasdaq:AVNR) looks better positioned with a Zacks Rank #2 (Buy).

Hanesbrands Initiates Dividend

The leading apparel retailer, Hanesbrands Inc. (NYSE:HBI), announced that it will initiate its dividend payback policy. In the recently held Investor Day conference call, the company announced that it will pay a regular quarterly dividend of 20 cents per share starting from June 3, 2013 to stockholders of record at the close of business on May 20, 2013. The annualized dividend per share stands at 80 cents per share. The dividend yield is 58.6%.

The initiation of the quarterly dividend is a part of the company's cash deployment strategy. The apparel chain is settled in a solid free cash flow position with a price to free cash flow ration of 10. Hanesbrands intends to use almost 20% to 25% of its free cash flow to pay dividend.

Winston-Salem, NC-based Hanesbrands is geared to maximize returns to shareholders. Apart from paying in the form of dividends, the company also intends to repurchase shares, although it is yet to formulate its share buyback strategy.

Signs of economic recovery have made share buybacks and dividend increases a common factor among companies with ample cash. Apart from enhancing shareholders' return, an attractive dividend payment strategy lifts the market value of the stock.

In the conference call, Hanesbrands highlighted its Innovate to Elevate Strategy as a part of boosting its earnings. The Innovate to Elevate strategy aims at using product innovation to enhance the brand value of the company. The company also revealed that apart from paying dividends and buying back shares, the company will use its cash for bolt-on acquisitions.

For the first quarter 2013, Hanesbrands expects sales to be $945 million. Operating profits are expected between $82 million and $85 million for the quarter. Earnings are expected to lie within the range of $0.48 to $0.51 per share.

For full year 2013, the company reaffirmed its sales guidance of $4.6 billion. It expects operating profits between $500 million to $550 million for the year. Earnings are expected to lie within the band of $3.25 to $3.40 per share.

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