Inside XLV’s Mid-Caps: Mallinckrodt Riding High on Good Earnings
Your Update on the Health Care SPDR ETF (XLV): The May 3 Story
Reviewing XLV mid-caps
The mid-cap stocks of the Health Care SPDR ETF (XLV) rose by 1.7% on May 3, 2016, outperforming the SPDR S&P 500 ETF (SPY), which fell by 0.9% the same day.
We should note that XLV provides limited exposure to mid-cap stocks in its portfolio. Among its six mid-cap stocks, three stocks advanced, and three stocks declined on May 3 from the previous day’s close. These mid caps account for only 1.5% of XLV’s portfolio.
The above graph reflects the daily changes of XLV’s mid caps as well as that of SPY. So far in May, XLV’s mid caps have returned 2% while SPY has returned -0.1%.
Mallinckrodt rises on fiscal 2Q16 earnings
Mallinckrodt (MNK) announced its earnings for fiscal 2Q16 on May 3, 2016, reporting net sales of $918 million, which represents a growth of 12.1% YoY (year-over-year). MNK’s adjusted net income in fiscal 2Q16 was $224.8 million, which is a 12.9% rise YoY, and its adjusted diluted earnings per share came in at $2.01, or 18.2% higher than the $1.70 it saw in 2Q15.
Mallinckrodt’s segments
Mallinckrodt reports its revenue under three segments. Its Specialty Brand segment reported sales of $535 million, as compared to $334.3 million in 2Q16, which represents a 60% growth YoY. The performance of INOMAX and Therakos drove the segment’s sales by generating sales of $165.7 million. However, MNK’s Specialty Generics segment and Nuclear Imaging segment saw declines of 27.1% and 6.6%, with revenues of $264.4 million and $102.2 million, respectively.
Mallinckrodt revised its 2016 adjusted diluted earnings per share to the range of $8.15–$8.50, as compared to its previous guidance of $7.85–$8.30. Mallinckrodt closed at $64.84 and was trading above its 20-day moving average. But the stock has still declined by 13.1% on a YTD (year-to-date) basis.
Valuations
Mallinckrodt is trading at a 2016 forward price-to-earnings multiple of ~7.3x. By comparison, Endo International (ENDP), Perrigo (PRGO), and Mylan (MYL) are trading at a 2016 forward price-to-earnings multiple of 5.0x, 11.6x, and 8.9x, respectively.
Mallinckrodt’s book value is $45.18 per share. At its current price, the stock is trading at a price-to-book value of ~1.4x. Mallinckrodt has a weight of 0.3% in XLV’s portfolio.
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