How to Use the DCF Analysis in a Stock Pitch
Mylan is one of the largest manufacturers of generic pharmaceuticals worldwide. It attracted investor interest in the first half of 2013 because of a large acquisition it announced and because one of its key competitors, Actavis, came under speculation as a takeover target.
In this case study, you’ll learn how to create and use the DCF analysis to pitch Mylan as an investment idea. You will learn how to take into account the potential impact of an acquisition on Mylan’s future performance, as well as how to establish Best Case / Worst Case scenarios based on the company’s own performance and the company it acquires (Agila).
The Case Study
NOTE: You will get more out of the live LBO training if you complete the homework. (see below)
Mylan [MYL] focuses on “generics,” i.e. non-branded drugs, but it also operates a “specialty” segment and it recently announced the acquisition of Agila, an injectable generic drugs company that has promising growth prospects in emerging markets.
Since this acquisition was announced on February 27, 2013, we are going back in time and acting as if we were making an investment recommendation in the 1-2 weeks following the announcement. Mylan earned revenue of nearly $7 billion in its 2012 fiscal year, and is expected to grow at approximately 5% in its main segments over the next several years. Its EBITDA was approximately $1.7 billion.
You will use your valuation and findings from market research and channel checks to make an investment recommendation on the company.
Download the Homework and Get Modeling
Download Parts 1 & 2 of the homework (zip files).
In Part 1, the homework assignment, you’ll set up the outline of a basic DCF to value the company on a standalone basis. You will also review background information, announcements, and equity research related to the company at this point in time.
In Part 2, the webinar presentation, you’ll learn how to modify this DCF to support the revenue and operating income contribution from Agila, and how to reflect the debt or cash used to acquire the company in Mylan’s capital structure and discount rate. You will also learn how to structure a stock pitch for the company and how to use your valuation to support your investment thesis.
Watch the Training Video
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