Mylan Write-Up

Mylan (Nasdaq:MYL) Historicals

($ in millions) 2013 2014 2015 2016
Price $31.82 Revenue $6,909 $7,720 $9,429 $11,077
FD Shares Outstanding (mm) 536.3 % Growth 1.7% 11.7% 22.1% 17.5%
Market Cap $17,065.1 EBIT $1,319 $1,606 $1,825 $2,074
Net Debt + Minority Interest $14,222.0 EBIT Margin 19.1% 20.8% 19.4% 18.7%
Enterprise Value $31,287.1 EBITDA $1,817 $2,145 $2,826 $3,528
EV/EBIT (2016) 15.1x EBITDA Margin 26.3% 27.8% 30.0% 31.9%
Dividend Yield 0.0% EPS $ 1.58 $ 2.34 $ 1.70 $ 0.92
ROE (2016) 4.6% Cash/Share $ 1.04 $ 0.71 $ 2.71 $ 2.19
Beta vs. S&P 500 1.3 Maintenance Capex 251 244 272 293
Price/Book 1.3x Total Capex 335 325 363 390
Gross Debt/Capital 0.5x FCF $1,566 $1,901 $2,554 $3,236
Net Debt/EBIT 6.9x FCF Yield 10.3%
Interest Coverage (EBIT/Int.) 4.7x Working Capital 2,090 4,647 3,209 3,593
Avg. Daily Volume (mm) 2.2 Net Fixed Assets 6,483 5,330 10,415 17,972
Shares Short (mm) 22.7 ROIC 15.4% 16.1% 13.4% 9.6%

 Recommendation: Sell
o Though valuation looks mildly compelling, margin of safety is not sufficient
 Would require a FCF yield above 12% to be interested.
 Worried about standalone revenue trends when you back out acquisitions.
o Market has become scared by Epipen troubles and overall strength of the generics
business
 I agree that the generics business has rapidly deteroriated for the entire sector as
approvals are being fast-tracked, pricing is eroding, and barriers to entry are
falling by the wayside. Given that much of the profitability comes from first-to-
market profits, this is scary.
 While it is compelling to say that the stock has fallen too much, if generic prices
continue to deflate, Mylan and the rest of the industry will still be harmed.
o Returns on capital are not strong enough
 Company has investing much more capital in the business in the last few years,
mostly from acquisitions.
 They have done so to plug revenue holes.
 Appears the quality of the business has decreased.