Lesson 03 MYL Stock Pitch

HedgeFund/HealthcareValuationCaseStudy:Mylan[MYL]vs.
Actavis[ACT]
Inthissamplestockpitchoutline,wellmakeaLONG(Buy)recommendationforMylan[MYL]based
ontheresultsofourmarketandvaluationanalysisandtheDCFoutputfromPart2ofthesetutorials.
Wellexplainthereasonsforthisrecommendation,whywerenotsayinganythingaboutActavis,the
additionalinformationwellneedtocreateacomprehensivepitch,andthenconcludewithanactual
stockpitchoutlinethatyoucanimmediatelyapplytoMylan,oranyothercompanyyourepitching.
LessonOverviewandWhyStockPitchesAreImportant
WhatInformationYouNeedforStockPitches
HowtoStructureaStockPitchandTipsonEachSection
ExampleStockPitchLONGRecommendationforMylan
WhatNext?
NOTESANDDISCLAIMERS:
First,pleasedonotconstruethisasinvestmentadvice.IamNOTrecommendingthatyouinvestinany
ofthesecompanies.Thisisatutorialabouthowtoresearchandpitchcompaniesthatyouthinkare
interesting,andhowtousewhatwevelearnedsofartosupportyourarguments.
Also,keepinmindthatthetipscoveredheremoveyouintherightdirection,butareNOTsufficientfor
anentirecasestudyorstockpitchforthat,youllneedtheresourcescoveredinthefullcoursesonthe
site,aswellasadditionalresearchyouneedtocompleteonyourown.
WhatYouWillLearninThisLesson:
Whystockpitchesandcasestudiesaresoimportantinhedgefund/assetmanagement,equity
research,andeveninfieldslikeinvestmentbanking,privateequity,andcorporatefinance.
Whatkindofinformationandanalysisyouneedtoproperlypitchastock,andthe6point
structurethatyoucanapplytoanytypeofinvestmentpitchevenoutsideofequities,infields
likefixedincomeorcommodities.
Howtostructureastockpitch,includingthe6keypointsthatyoualwaysneedtomention,how
toavoidthetop3mostcommonmistakesthatwillsinkyourchances,andhowyoushould
researcheachofthe6points.
ArealexampleyoullgetastockpitchforMylanthatyoucouldeasilyreuseandreapplyto
othercompaniesandinvestmentideasaswell.
WhatNext?Nowthatyouvebeenthroughthetutorialsandyouveseenreallifeexamplesofall
theseconcepts,youlllearnwhatyournextstepsshouldbeifyouwanttolandinternship/job
offers,orifyourealreadyworkingandsimplywanttoperformbetter,getpromoted,ormove
toanotherfirm,usingtheskillsyouvelearnedhere.
http://breakingintowallstreet.com
http://www.mergersandinquisitions.com

WhyAreStockPitchesImportant?
TheyreCriticalinInterviewsEvenoutsideofpublicmarketroles,youmustbeabletopitch
ideasforinvestments,clients,potentialbuyers/sellers,andsoon,forinterviewsacrossthebuy
sideandsellside,andevenatnormalcompaniesoutsidethefinanceindustry.
TheyLevelthePlayingFieldIfyoudonthavea4.0GPAfromHarvardortopALevelsandan
Oxbridgedegree,presentinganexceptionallywellthoughtoutstockpitchisagreatwaytoset
yourselfapartandgetfirmstohireyouovertheIvyLeaguecrowd.Andifyouareinthat
crowd,well,youalsoneedagreatstockpitchtosetyourselfapartfromyourcompetition.
TheyAREWhatYouDoontheJobYoullmakethesepitchesallthetimewhenpresenting
ideastotheinvestmentcommitteeorothersatyourfirmandattemptingtosellthemonyour
ideas.Eveninsellsiderolessuchasinvestmentbanking,youllhavetowriteCIMsandother
documentsthatpitchcompaniestoinvestors,andtodothatyouneedtounderstandhow
investorsthinkaboutcompanies.
ReturntoTop.
WhatDoYouNeedforaStockPitch?
Youneedacombinationofmarket/industryresearch,companyspecificresearch,andideasaboutthe
valuation.
Inthiscasestudy,wevemostlyfocusedonthevaluationsidebecauseitisntparticularlyinterestingto
showyouhowtodoGooglesearchesaboutthehealthcareindustryorhowtocontactindustry
professionalsonLinkedInorothersources.
However,allofthoseareimportantandyouwouldneedtodo(moreof)theminarealpitch.
Herearethe5majorcategoriesweneedinthispitchforMylan:
CompanyResearchReadtheirfilings,investorpresentations,andequityresearch.Whatweve
donesofarinthiscasestudyisagoodstart,butitsnotquiteenoughtoensurethatweve
coveredallourbases.Specifically,wevedonealotofworkandanalysisaroundtheAgila
acquisition,butlessworkonthecompanysgenericspipelineanditsexistinggenericsbusiness.
IndustryResearchReadindustryreportsissuedbyIDC,theBig4accountingfirms,andany
industryspecificjournalsyoucanfind.LookatrecentM&Aandfinancingactivity,readany
recentarticlesabouttheindustryinTheWallStreetJournalorFinancialTimes,andleaveno
stoneunturnedasyoufigureoutthekeydrivers.Forexample,forMylanwemighttakealookat
thePwCreportonhealthcaredeals,orthesectiononjustpharmaceuticals,orthelifesciences
sectionoftheDeloittesite.
CompanyDocumentsTheirmostrecentannualreport(the10KforUSbasedcompanies)and
anyinterimreports(10Qs),recentinvestorpresentations(seetheInvestorRelationssectionof
theirsite),earningscalltranscripts,andpotentiallyevenequityresearch(butbecarefulsee
thesectionbelowonmistakestoavoid).
ChannelChecksandExpertsThisstepisextremelyimportantandalotofpeoplemissit
completely.Itsnotenoughjusttodoonlineresearchwhenpitchingstocksandcompletingcase
studiesyouneedtotalktorealpeopleontheground,suchascustomers,suppliers,
distributors,retailers,andsoon,tofigureoutwhatsgoingonandwhattheythinkofthe
companysproductsandprospects.Forexample,forMylanweshouldreachouttoafew
employeesattheirbiggestcustomersviaLinkedIn,speakwithanyhospitalsormedicalgroups
thatusetheirpharmaceuticals,andreachouttokeysuppliersandpartners,especiallyifwecan
findanyoneintheemergingmarketsthatwilldrivefuturegrowth.
ValuationWealreadyhavetheDCFforMylan,andyoushouldcompletesometypeofDCF
analysisforanycompanyyoupitch(unlessitsanindustrywheretheDCFisnotapplicable,such
ascommercialbanks).Whatsmissingherearethepubliccompsandprecedenttransactions
thosearebothcoveredindetailinthefullcoursesonthesite.
Howcanyoutellwhenyoualreadyhaveenoughresearch?
Askyourselfwhetherornotyouhavespecificanswerstothefollowingquestions:
Areyourecommendingfororagainstinvestinginthiscompany,andwhatarethe3main
qualitativeandquantitativereasonswhy?
Howmuchmoneycouldyoumakeifitincreasedordecreasedtothesharepricethatyouthink
itsactuallyworth?
Whatare23keyeventsorpotentialevents(catalystsseetheactionbelow)overthenext6
12monthsthatcouldcauseitsstockpricetochange?
Whatarethetop23riskstoyourtargetedstockprice,whatstheapproximatenumerical
impactofeachrisk,andhowcouldyoumitigateeachrisk?
IfyouCANNOTcomeupwithgoodanswerstothosequestions,keepworkinguntilyoucan.
WhattoAvoidWhenGatheringInformation:
OverRelianceonEquityResearchYes,getindustrydatafromitanduseittofindoutmore
aboutthemarket,butDONOTformyourowninvestmentthesisbasedonsellsideresearch.
Thesereportstendtobeoverlyoptimisticandfailtoconsidertheriskfactorsinmanycases.
OnlineOnlyResearchYoumightbeabletogetawaywiththissometimes,butdoyouwantto
takethechanceinacompetitiveinterviewprocess?Candidateswhoperformthebesttalkto
realpeopleinthemarketanddothechannelchecksdescribedabove.
OnlyOneSourceJustlikeyouwoulddiversifyyourportfoliotoreducerisk,youalsoneedto
diversifyyoursourcesoryoullriskusingbiased,incompleteinformation.

YoucanalsonowunderstandwhyweavoidedActavisinthisstockpitch:wedontevenhavecloseto
enoughinformationonittodoeverythingabove.AtleastwithMylan,wehaveafairamountofmarket
andvaluationdataandwecanusethattooutlinewhatastockpitchmightlooklike.
ReturntoTop.
HowDoYouStructureaStockPitch?
Heresthe6pointstructureIrecommendusing:
RecommendationLongorshort,andwhatdoyouthinkthecompany/assetisreallyworth?
Neutralrecommendationsarenotrecommendedbecauseyouneedapricingimperfectionto
makemoney.
CompanyBackgroundWhatareitsproducts,howmuchrevenue/EBITDAdoesithave,whatis
itsmarketcap,andwhatareitscurrentvaluationmultiples?
InvestmentThesisThestockispricedimperfectlybecauseofthese23keyfactors.The
markethasnotfactoredtheminbecause.Butyoubelievetheyvebeenoverlooked,andthat
theresachancetogainsignificantlybylonging/shortingthisstock.
CatalystsAndcertainkeyeventsinthenext612monthswillcausethemarkettorealize
thispricingimperfection,resultinginacorrectionandthepotentialtomakemoney.Keyevents
mightbenewproductlaunches,acquisitions(asinthecaseofMylanandAgila),earnings
announcements,competitorstacticschanging,divestitures,positiveclinicaltrialdata(again,
importantforMylanbutwehavelessinsightintothis),andfinancingactivitiessuchasshare
repurchasesandissuingdebtorequity.
ValuationForalongrecommendation,youneedtoshowthattheresagoodchancethatthe
stockisundervaluedinsomeway(e.g.rightnowitstradingat$25,buttheresareasonable
chanceitsworth$30$35)byshowingyourpubliccomps,precedenttransactions,andDCF
analyses;forshortrecommendations,youdotheoppositeandshowwhythestockis
overvalued.
RiskFactorsandHowtoMitigateThemWhatarethemainreasonswhyyoumightbewrong?
Andyes,everyoneiswrongsometimes.Youhavetolayoutthetop23marketandcompany
specificreasonswhyyourinvestmentthesismightbewrong,andthenexplainwhatyoucando
tohedgeagainsttheserisksevenifyourewrong,couldyouatleastlimityourlosses?
HereareafewtipsandtricksoneachsectionbeforewegointotheactualstockpitchforMylan:
Recommendation
Thegoalofeverysinglestockorinvestmentpitchistoconvincetheotherpersonthatyourideahasan
asymmetricriskprofile.Inotherwords,byinvesting,theyhavea75%chanceofgaining15%andonlya

25%chanceoflosing15%...orwhatevertheactualnumbersare.Theexpectedvaluemustbepositive
forthepitchtobeconvincing.
Thetrickisthatyoudontwanttobesuperspecificbecausethatwilljustleadtoquestionsyoucannot
answer,suchas,Sohowdoyouknowtheresexactlya75%chanceofgaining15%?
Youcanbe(relatively)specificwiththepotentialtogainorloseacertainpercentagesincethatshould
comefromyourvaluation,butyoudontwanttogetintospecificprobabilitiesitsbettertoleaveitas
asignificantchanceoragreaterthan50%chanceorsomethinglikethat.
Irecommendstructuringtheinitialrecommendationlikethis:
1. Longorshort,currentshareprice,percentagebywhichitsovervaluedorundervalued,andthe
top23reasonswhythestockpricewillchangeinthenext612months.
2. 23potentialcatalyststhatwillresultinthestockpricechanginginthenext612months(see
thesectionbelowoncatalysts).
3. 23investmentrisks(companyspecificand/ormarketspecific)andhowyoumightmitigate
thoserisksthroughotherinvestments,protectiveoptions,etc.
YoullseefirsthandhowtoapplythisstructurewhenwegettotheexamplepitchforMylan.
CompanyBackground
Thisistheeasiestsectionoftheentirestockpitchbecauseyoujustlistkeyfinancialstatsaboutthe
company(revenue,EBITDA,marketcap,andcurrentmultiples)andaquickoverviewofwhatitdoesand
itskeybusinesssegments.
Dontjustcopyinthedescriptionsfromthecompanysfilingsorannualreportsyouneedto
summarizeandfocusonthemostimportantpoints,whileleavingoutthecorporatespeakand
boilerplatelanguage.
InvestmentThesis
Heresyourtemplateforthissection:
Currently,themarketthinksofthiscompanyinXway,andasaresultittradesatapproximately$Yper
share.However,IthinkthestockispricedimperfectlybecauseofreasonsWandZ.Themarkethasnt
pricedinthesefactorsyetbecauseofreasonsA,B,andC.
Asaresult,Iammakinga[LONG/SHORT]recommendationonthecompany,withatargetpriceof[$D
$F]inthenext612months.

Thesereasonsaresignificantbecause[Explainhoweachofthemdirectlytiesintothecompanysimplied
valuation,ideallyshowingsensitivitytablesoranyotheroutputfromyouranalysisyourreasonsmust
bespecifictobeeffective].
Evenifonlyoneofthesereasonsendsupmakinganimpact,theresstillsignificantupsidepotentialin
thestockpricebecause[Andthenpointtoanyotheranalysislinkingjustoneofthesefactorstothe
impliedshareprice].
Catalysts
Itsmoredifficulttogiveatemplateforthissectionbecauseitdependsonthespecificcatalystsyoure
citing.Buthereareafewexamplesforwhatyoumightsayinthispart:
1. Catalystsinthenext612monthsinclude[Summarizethembrieflyinthebeginning].
2. Catalyst#1issignificantbecausethecompanycouldgenerateanadditional$Xinrevenuefrom
it,whichwouldresultinadditionalEBITDAorearningsof$Y,boostingitssharepriceby$Zifits
currentvaluationmultiplesremainthesame.
3. Catalyst#2issignificantbecausethemarkethasnotyetpricedintheimplicationsofthe
regulatoryenvironmentin[CountryX],whichwillbeamajorsourceofgrowthforthecompany
goingforward.Ifitsrecentacquisitionthereclosesonschedule,initsfirstearningscallXX
monthsfromnowitwillannounceresultsandthatcouldleadtoamarketcorrection.
4. Catalyst#3issignificantbecauseitscompetitorsrecentacquisitionisinahighriskand
unprovenarea,whichmeansthatinvestorsmayfleethestockasthedealclosesinthenext12
monthsandmoveinto[OurCompany]instead,pushingupitsshareprice.Additionally,the
competitorhasnotyetoffereddetaileddisclosuresonthecompanyithasacquired,whichmay
resultinacontinuedselloff.
YoullseetheexactcatalystsweciteforMylanintheexamplepitchbelow.
Valuation
Thissectionmostlycontainstheoutputfromyourpubliccomps,precedenttransactions,andDCF
analysisforthecompanyinquestion.Inthiscase,ofcourse,wedonthavepubliccompsorM&Acomps
forMylan,sothatssomethingyoudhavetodoonyourown,andsomethingthatwecoverindetailin
thefullcoursesonthesite.
Inadditiontopastinginyouroutput,however,youneedtojustifyyourassumptionsand,ideally,show
acompanysvaluationacrossdifferentsetsofassumptionstoillustratethatyouvethoughtabouta
widerangeofpossibleoutcomes.
If,forexample,youveonlyconsideredthecasewherethecompanygrowsby10%peryearinyourDCF,
youregoingtohaveaverydifficulttimeexplaininghowyouknowthatwillbetheexactgrowthrate.

Itsbettertolookatarangeofpossiblegrowthrates,highlighttheonesthatseemmorelikely,butat
thesametimealsoshowthatyouvegiventhoughttothedownsidecasesaswell.
Withpubliccompsandprecedenttransactions,yourenotdefendingyourassumptionssomuchas
explainingwhyyourselectioncriteriawascorrectandhowthesecompaniesandM&Adealsapply
directlytothecompanyyourepitching.
WithMylan,forexample,ifwehadcreatedasetofpubliccompsandthenaddedinhealthinsurance
companiesorpharmaceuticalscompaniesthatdonotfocusongenerics,itwouldbeverydifficultto
justifytheset.
EveninthecurrentsetusedintheDCFtocalculateWACC,addingincompanieslikePfizerandMerckis
questionable(sincetheyremuchbiggerandmorediversified),andyouwouldgetquestionsonthis
decisionifsomeonedugintoyouranalysis.
RiskFactorsandHowtoMitigateThem
Thisisthemostcommonlyoverlookedormisinterpretedsectionofanystockpitch.Yes,themost
obviousriskforalong/shortrecommendationisthatthestockpricemovesintheoppositedirection
butwhatcausesthattohappen?
Todeterminethat,youhavetogobacktoyourinvestmentthesisandcatalystsandlinktheriskfactors
directlytothosepoints.
Thekeyhereisspecificity.Wheneverpossible,youneedtotieeachriskfactortoaspecificdollarimpact
onthecompanysimpliedsharepriceandindicatehowyoumightprotectagainstit,oratleastreduce
yourpotentiallosses.
HereisthestructureIrecommend:
1. TheTop23RiskFactorsForMylan,forexample,keyriskfactorswouldbenewproducts
failingtolaunchontime,theAgilaacquisitionnotclosingornotperformingaswellasplanned,
thegrowthratesinemergingmarketsbeinglowerthanexpected,andsoon.Youwouldthen
attempttoestimatetheimpliedpershareimpactfromeachofthese(evenawiderangeis
betterthannothingatall).
2. HowtoMitigatetheRisksForlong/shortequitystrategiesandstockpitches,youmitigatethe
risksmostlyviaprotectiveoptions(e.g.putoptionsforlongrecommendationsandcalloptions
forshortrecommendations)andbylongingorshortingothercompaniesstocksthatmaymove
intheoppositedirectionfromthecompanyyoureanalyzing.
3. AndEvenintheWorstCaseLetssaythatyourereally,reallywrong.Howmucharethe
companysnetassetsworthifitgoesbankrupt?Doesithaveanyassetsordivisionsthatitcould
selloffinthecaseofextremefinancialdistress?Forshortrecommendations,howwillyoulimit

yourlossesifyourecompletelywrongandthecompanysstockpriceskyrockets?Doesyour
valuationindicatethat,evenintheworstcase,theresalowprobabilityofthecompanysshare
pricefallingbelowacertainnumberorrisingaboveacertainnumber?
TheTop3MostCommonMistakesinYourStockPitchStructureandHowtoAvoidThem
Herearethe3mostcommonmistakesweveseenwithclientsandstudentsofourcourseswhoare
researchingandvaluingcompanies(orotherinvestments)foruseintheirownpitches:
1. InabilitytoSupportAssumptionsWhyareyouassuminghigherrevenuegrowthormarginsin
acertainyear?Whatresearchorchannelcheckssupportthatassumption?Whydoyouthink
thecompanywillgrowatahigherthanexpectedorlowerthanexpectedrate?Iftheygetintoa
detaileddiscussionandyoucantbackupeverynumberinyouranalysis,youllbeintrouble.
2. PoororNonExistentCatalystsIfyourcatalystsarebeyondthe612monthrange,thatstoo
farintothefutureformosthedgefunds(remember,theyarereportingperformancetotheirLPs
veryfrequently).Also,ifyoulistcatalystsbutyourevagueaboutthespecificpricepershare
impact,oryourcatalystsarenotcompanyspecific(e.g.Theeconomywillreboundduetonew
fiscalpolicy!)yourealsomakingamistake.
3. PoororNonExistentRiskFactorsandMitigantsThemostcommonmistakeistoleavethese
riskfactorsoutaltogether,ortogiveriskfactorsthataretoovague(e.g.Emergingmarkets
growthwillbeslowerthanexpectedyes,butwhatdollaramountofpotentiallossesdoes
thattranslateintoforyou?).Failingtogivemitigantsthatareproperlymatchedtotherisksyou
stateisanothercommonmistakeinthissection.
ReturntoTop.
HowDoYouOutlineandWriteaStockPitch?
Finally,whatyouvebeenwaitingfor.
Notethatthisisalengthypitchandisnotsomethingyouwouldsayinresponsetoasimpleinterview
questionunlesstheywanttomakethewholeinterviewanextendeddiscussionofastock.
Thisismoreofanoutlinethatyouwouldusetoprepareforaformalpresentationofastockpitchor
casestudyinaninterview.
HerestheexamplestockpitchoutlineforMylan,alongwithafewnotesandcommentsinbetween:

StockPitchLONGRecommendationforMylan[MYL]
Recommendation
IrecommendlongingMylan[MYL],agenericspharmaceuticalscompany,whichcurrentlytradesat
$28.60pershare,becauseitisundervaluedby1020%,themarkethasincorrectlyoveremphasizedprice
competitioninitsEpiPenproductline,andthereissignificantlymoreupsidetoitsrecentlyannounced
Agilaacquisitionthanthemarkethasgivenitcreditfor.Additionally,evenifgrowthinitsgenerics
segmentdeclinesatfasterthanexpectedrates,thereisstillatleast10%potentialupsideinthestock.
Catalyststoincreaseitssharepriceinthenext612monthsincludethecloseofitsrecentlyannounced
$1.6billionAgilaacquisition(expectedinQ4),thecompanysfirstearningsannouncementpost
acquisition,andthelaunchofXeloda,anoralcancerdrug,inthemiddleoftheyear.
KeyinvestmentrisksincludetheAgilaacquisitionfailingtoclose,integrationbeingmorechallenging
thanexpected(resultinginlowerrevenuegrowthand/ormargins),andthecompanysnewproduct
launchesfortheyear,suchasXeloda,generatinglowerthanexpectedrevenue.Wecouldmitigate
thoserisksviaprotectiveputoptionsorcoveredcalls,orbylongingthestockofpeercompaniesthat
haveinvestedmoreheavilyinothergeographiesorincompetitiveproducts.
CompanyBackground
14M
$30.00
12M
$25.00
10M
$20.00
8M
$15.00
6M
$10.00
4M
$5.00
2M
$0.00
0M
Volume
SharePrice
SharesTraded(inMillions)
SharePrice
Mylan PriceVolumeGraph(PastYear)
$35.00
Mylanisaglobalpharmaceuticals
companythatoperatesin2
segments:genericsandspecialty
pharmaceuticals(primarilyEpiPen).
TotalrevenueinFY2012was$6.8
billion,withEBITDAof$1.7billion
(24%margin),andthecompanyhas
grownrevenueat1012%forthe
past2years,mostlythrough
acquisitionsofgenericsand
specialtybusinessesfromother
companies.
Itsgenericssegmentaccountedfor88%oftotalrevenueand85%ofoperatingincomeinFY2012,but
itspercentageoftotalrevenuehasdeclinedslightlyfromover90%3yearsago.
Mylancurrentlytradesattrailingmultiplesof2.3xEV/Revenueand9.3xEV/EBITDA.Forward
multiplesinourbasecaserevenueandmarginassumptionsare2.1xEV/Revenueand9.0xEV/
EBITDAinFY2013,excludingtheimpactoftheAgilaacquisition(whichissettocloseinQ4ofFY2013).
InvestmentThesis
Currently,themarketviewsMylanasafairlystandardgenericspharmaceuticalscompanyinthemiddle
oftherangeofitspeercompaniesintheindustry.Asaresult,italsotradesatvaluationmultiple
squarelyinthemiddleofthatrange,anditsmultiplesareclosetothoseofActavis,itsclosestpeer
(excludingtheimpactofacquisitions).
However,thestockispricedimperfectlyforthefollowingreasons:
1. ThereissignificantlymoreupsidetotheAgilaacquisitionthanthemarkethaspricedinas
demonstratedbychannelchecksweperformedinemergingmarketssuchasBrazil,which
comprises27%ofAgilasrevenue.Factoringinhigherthanprojectedgrowthrates,ouranalysis
impliesavaluationofatleast$31.00$32.00persharevs.Mylanscurrentpriceof$28.60.
2. Thereissignificantlylessdownsideinthedeclineofitsspecialtysegmentthanthemarkethas
attributedtoit.Evenwithmoreconservativeestimates,thespecificdeclinerateofthissegment
onlyaccountsforapproximately$0.75$1.00ofMylansimpliedpersharevalue.Inmost
reasonablescenarios,afasterthanexpecteddeclineratewouldpushdownMylansvaluation
byatmost$0.50pershare.
3. Whilesomehaveexpressedconcernovergrowthinitscoregenericssegment,evenwithlower
assumedgrowthratesoverthenext5years,thereisstillpotentialupsideofatleast10%over
thenext12months;furthermore,thelaunchofkeynewproductssuchasXelodainthemiddle
ofthisyearreducestheriskoflowerthanexpectedrevenuegrowth.
Eachofthesereasonstiesindirectlytothecompanysvaluationandwillmakeasubstantialimpact(in
thecaseofreasons#1and#3above),orwillmakefarlessofanimpactthanwhatthemarketcurrently
expects,eveninadownsidescenario(forreason#2).
Evenifsomeofthesereasonsturnouttobeincorrect,anyoneofthefactorsaboverepresentsa
significantdifferencefromthecurrentmarketviewofthestockandcouldresultinsubstantialupside.
Ifallofthefactorsaboveturnouttobeincorrect,thenMylanisvaluedappropriatelyatitscurrentstock
priceandaninvestmentwouldrepresentminimaldownsiderisk,eveniftheresnoroomforshareprice
appreciation.
Catalysts
Catalystsinthenext612monthsinclude:
Thecloseoftherecentlyannounced$1.6billionAgilaacquisition(expectedinQ4FY2013);
Thecompanysfirstearningsannouncementpostacquisition;and
TheXelodalaunchinthemiddleoftheyear.

Catalysts#1and#2areinterrelatedandarethemostsignificantintermsofvaluation.Specifically,the
acquisitionofAgilamayresultin$450+millioninadditionalrevenueinFY2014andover$120millionin
EBITDA,withrevenuegrowingtoover$900millionandEBITDAgrowingto$300+millioninFY2017.
Thismakesadifferenceofover$7.00pershareinthebasecaseassumptionsinourDCFanalysis
(discountrateof6.8%,terminalFCFgrowthrateof1.0%,andgenericsrevenuegrowthat7%initially,
fallingto4%byFY2017):
WITHOUTAgila,Mylansimpliedsharepriceisinthe$20.00$30.00range:
Mylan,Inc.NetPresentValueSensitivityTerminalGrowthRates
TerminalGrowth
Rate
$24.35
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
5.0%
$72.63
59.26
49.70
42.54
36.97
32.51
5.5%
$57.89
48.52
41.49
36.02
31.65
28.07
6.0%
$47.36
40.47
35.10
30.81
27.30
24.37
6.5%
$39.46
34.20
29.99
26.54
23.67
21.24
DiscountRate
7.0%
7.5%
$33.32 $28.40
29.18 25.08
25.80 22.31
22.98 19.97
20.60 17.96
18.55 16.19
8.0%
$24.37
21.66
19.36
17.39
15.64
14.11
8.5%
$21.02
18.76
16.81
15.09
13.59
12.27
9.0%
$18.18
16.25
14.56
13.09
11.79
10.63
Itsimpliedsharepriceisexactly$24.35withouttheacquisition,butitjumpsto$31.00+persharewith
theacquisitionincludedinfutureyears(thehighlightedareabelowdemonstratesmoreofthe
downsidecase3035%+revenuegrowthislikelybasedonourchannelchecks):
AgilaAnnual
Declinein
RevenueGrowth
Rate
Mylan,Inc.NetPresentValueSensitivityInitialAgilaRevenueGrowthvs.DeclineinRevenueGrowthRatesinSubsequentYears
InitialAgilaRevenueGrowth
$31.41
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
50.0%
55.0%
(1.0%)
$27.96 $28.85 $29.90 $31.13 $32.56 $34.22 $36.13 $38.33 $40.83
(1.8%)
27.73 28.57 29.57 30.75 32.12 33.71 35.54 37.64 40.05
(2.5%)
27.50 28.31 29.26 30.38 31.69 33.21 34.97 36.99 39.30
(3.3%)
27.29 28.05 28.96 30.03 31.28 32.73 34.41 36.35 38.57
(4.0%)
27.09 27.81 28.67 29.69 30.88 32.27 33.88 35.74 37.87
(4.8%)
26.89 27.58 28.40 29.37 30.50 31.83 33.37 35.15 37.20
Asshowninthetable,evenifAgilasrevenuedeclinesatfasterthanexpectedrates(thebottomseveral
rows),thereisstillupsideanda$30.00+persharepriceisplausiblewiththeAgilacontribution.
ConsensusestimatescurrentlypegAgilasrevenuegrowthat25%inFY2014,fallingto10%byFY2017,
butwehaveassumedapremiumtothesenumbersbecauseofthefollowingfactors:
Viachannelchecks,wespokewithseveralhealthcareprofessionalsinemergingmarketsand
theyallagreedthatAgilasmarketpositioninBrazil(whichcurrentlyrepresents27%ofits
revenue)ishighlydesirableandverydifficulttoreplicategivengovernmentregulationsthere
andtherequirementtomanufacturelocally.Effectively,ithasclosetoamonopolyinthisfast
growingmarketandwillmaintainthatforthenextseveralyears.
Furthermore,severalcustomersinBrazilmentionedthattheyexpectdemandforinjectableswill
behigherthanexpectedandthatthegrowthrateinBrazilwillbeevenhigherthanoverall
injectablesgrowthinemergingmarketsasawhole.
Asaresult,webelievethat35%+growthinitiallyfollowedbyaslowerthanexpecteddeclineis
reasonable,whichinturnwillboostMylanssharepriceoncethemarketgainsknowledgeofthisand
pricesitinappropriately.
Thesecondcatalyst,thecompanysfirstearningsannouncementpostacquisition,issignificantbecause
thiseventmaymakethemarketrealizethepricingimperfectioninMylansstockoncethecompany
provideshigherthanexpectedguidanceforFY2014asaresultoftheacquisition.
Itispossiblethattheacquisitionmaynotclose,ormaynotbeapprovedbygovernmentauthorities,or
maynotworkaswellasexpected,butweaddresstheserisksbelowinthesectiononInvestmentRisks.
Finally,catalyst#3,thelaunchoftheXelodabrand,issignificantbecauseitisa$700+millionbrandwith
thepotentialtoboostMylanstotaloverrevenueoverthenext5yearsbyanywherebetween2%and
5%dependingontherevenuecontributioneachyear.
ThissensitivitytableshowstheimpactofMylansgenericssegmentrevenuegrowthanditsoverall
operatingmarginoverthenext5yearsonitsimpliedshareprice:
Mylan,Inc.
Standalone
OperatingMargin
Mylan,Inc.NetPresentValueSensitivityGenericsRevenueGrowthvs.OperatingMargin(Excl.Acquisition)
InitialGenericsRevenueGrowth(Annualchangeof(0.8%))
$31.41
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
17.5%
$28.39 $29.61 $30.88 $32.20 $33.56 $34.98 $36.44 $37.96
17.0%
27.48 28.66 29.89 31.17 32.49 33.86 35.28 36.75
16.5%
26.57 27.71 28.90 30.13 31.41 32.74 34.11 35.54
16.0%
25.66 26.76 27.91 29.10 30.34 31.62 32.95 34.32
15.5%
24.74 25.81 26.92 28.07 29.27 30.50 31.78 33.11
15.0%
23.83 24.86 25.93 27.04 28.19 29.38 30.62 31.90
11.0%
$39.53
38.27
37.01
35.75
34.49
33.23
Whilethistabledoesnotdirectlyshowtheimpactofcumulativerevenueandrevenuegrowthover5
years,youcanseetheimpactofevena1%changeininitialrevenuegrowthinFY2013:approximately
1%inextrarevenuegrowthtranslatesintoaround$1.25inextrapersharevalue.
WithXelodaandothernewproducts,webelieveatleast67%revenuegrowth,fallingby0.5%1.0%per
year,isreasonable,whichwouldimplyvaluationsofatleast$29.00$30.00pershare,andpotentially
over$32.00pershare.
AlloftheaboverepresentcatalyststhatcouldboostMylanssharepricetoourtargetedrangeof$32.00
$34.00pershareinthenext12months;iftheyallcometrueandworkasexpected,thepricemaybe
neartheupperendofthatrange,andifoneormoreisfalse,thereisstillpotentialupsideinthestock
butitwouldbereducedtothelowerendofthatrange,orslightlybelowit.
Valuation
WehavevaluedMylanusingpubliccomps,precedenttransactions,andtheDCFanalysis.
Toselectcomparablepubliccompaniesandprecedenttransactions,wehaveusedthefollowingcriteria:
[Youwouldexplainthecriteriahereinarealstockpitchthisselectionprocessandthecalculations
youneedtomakearecoveredinthefullcoursesonthesite].
Herearetheimpliedvaluationrangesfromthesemethodologies:[Youwoulddisplaytherangesfrom
thisanalysisinarealstockpitchandexplainwhatthevaluationrangestellyouaboutthecompany
mightitbeundervalued?Overvalued?Valuedappropriately?Thesechartsanddiscussionsare
coveredinthefullcoursesonthesite.]
Thediscountedcashflowanalysisusesthefollowingbasecaseassumptions:
InitialGenericsSegmentrevenuegrowthof7.0%,decliningby0.8%peryear(basedonMylans
productpipeline,expectedlaunchdates,andconsensusestimates,whichwehaveseenno
reasontodeviatefrom)
InitialSpecialtySegmentrevenuegrowthof10.0%,whichthenreversesintoa20.0%annual
declineeachyearstartinginthesecondyearmostanalystsprojectthissegmenttogrowfor2
yearsbeforedeclining,butwearebeingextraconservativewiththebaseassumptionshere
OperatingMarginof16.5%andTaxRateof35.0%,inlinewithhistoricallevels
$1.6billionindebtraisedfortheAgilaacquisitioninFY2013,witha$125millioncashearnoutin
FY2014;Agilasrevenuegrowsfrom$454millioninFY2014to$908millioninFY2017,with
OperatingIncomerisingfrom$121millionto$283millionthesenumbersexceedconsensus
estimatesduetoourchannelchecksandadditionalresearch
6.8%discountrate(basedonpubliccompsandWACC),1.0%terminalFCFgrowthrate,and
standarddiscountperiods
HerestheDCFdowntotheNOPATlinesothatyoucanseetherevenueandoperatingincome
contributionsfromdifferentsegmentsandtheAgilaacquisition:

Mylan,Inc.FreeCashFlowProjections
FiscalYearEndsDecember31,
Generics&OtherRevenue:
GenericsRevenueGrowthRate:
Specialty(EpiPen)Revenue:
SpecialtyRevenueGrowthRate:
TotalRevenue:
OverallRevenueGrowthRate:
OperatingIncome:
OperatingMargin:
2010
Historical
2011
2012
2013
2014
Projected
2015
2016
2017
$5,028 $5,583 $5,996 $6,416 $6,817 $7,192 $7,533 $7,835

N/A
11.0%
7.4%
7.0%
6.3%
5.5%
4.8%
4.0%
423 547 800 880 704 563 451 360
N/A
29.3%
46.3%
10.0%
(20.0%)
(20.0%)
(20.0%)
(20.0%)
$5,451 $6,130 $6,796 $7,296 $7,521 $7,755 $7,984 $8,195
N/A
12.4%
10.9%
7.4%
3.1%
3.1%
3.0%
2.6%
722 1,005 1,109 1,204 1,241 1,280 1,317 1,352
13.2%
16.4%
16.3%
16.5%
16.5%
16.5%
16.5%
16.5%
Less:Taxes,ExcludingEffectofInterest:
(421) (434) (448) (461) (473)
NetOperatingProfitAfterTax(NOPAT):
782 807 832 856 879
ContributionfromAgila:
Revenue:
RevenueGrowthRate:
OperatingIncome:
OperatingMargin:
NOPAT:
TaxRate:
70 129 193 255 344 454 586 739 908

84.3%
49.6%
32.1%
35.0%
32.0%
29.0%
26.0%
23.0%
32 49 66 91 121 169 223 283
24.7%
25.4%
25.9%
26.3%
26.6%
28.8%
30.2%
31.2%
68 91 126 168 212
25.0%
25.0%
25.0%
25.0%
25.0%
CombinedCompanyRevenue:
CombinedCompanyOperatingIncome:
CombinedCompanyNOPAT:
7,296 7,975 8,341 8,722 9,103

1,204 1,362 1,448 1,541 1,635
782 897 958 1,024 1,091
Herearethemostrelevantsensitivitytablesbasedonkeyvariablesinthisanalysis,suchasthediscount
rate,terminalgrowthrate,andrevenuegrowthandmargins:
TerminalGrowth
Rate
Mylan,Inc.NetPresentValueSensitivityTerminalGrowthRates
$31.41
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
5.0%
$89.51
73.40
61.90
53.27
46.56
41.19
5.5%
$71.77
60.48
52.02
45.43
40.17
35.86
6.0%
$59.10
50.80
44.34
39.17
34.94
31.41
6.5%
$49.60
43.26
38.19
34.04
30.58
27.66
DiscountRate
7.0%
7.5%
$42.21 $36.30
37.24 32.31
33.16 28.97
29.77 26.16
26.90 23.74
24.44 21.64
8.0%
$31.47
28.20
25.43
23.06
21.00
19.20
8.5%
$27.44
24.72
22.39
20.37
18.61
17.04
9.0%
$24.03
21.74
19.76
18.03
16.47
15.08
KeyTakeaways:Theanalysisishighlysensitivetobothoftheseassumptionshowever,theseterminal
growthratesarealsoquiteconservativeandeveninthecaseof0.0%or0.5%growth,thecompany
wouldonlybevaluedatslightlylessthanitscurrentstockprice.Thebiggerquestionisthediscountrate
is7.0%(or6.8%moreprecisely)appropriate?Thatmayrequiresomeadditionalresearch.
HeresanothertablefortheinitialrevenuegrowthinMylansgenericssegment(withtherevenue
growthratefallingby0.75%eachyear,i.e.thesecondyearwouldbe6.3%),alongwiththecompanys
overalloperatingmargin:
Mylan,Inc.
Standalone
OperatingMargin
Mylan,Inc.NetPresentValueSensitivityGenericsRevenueGrowthvs.OperatingMargin(Excl.Acquisition)
InitialGenericsRevenueGrowth(Annualchangeof(0.8%))
$31.41
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
17.5%
$28.39 $29.61 $30.88 $32.20 $33.56 $34.98 $36.44 $37.96
17.0%
27.48 28.66 29.89 31.17 32.49 33.86 35.28 36.75
16.5%
26.57 27.71 28.90 30.13 31.41 32.74 34.11 35.54
16.0%
25.66 26.76 27.91 29.10 30.34 31.62 32.95 34.32
15.5%
24.74 25.81 26.92 28.07 29.27 30.50 31.78 33.11
15.0%
23.83 24.86 25.93 27.04 28.19 29.38 30.62 31.90
11.0%
$39.53
38.27
37.01
35.75
34.49
33.23
KeyTakeaways:Ifyoulookatthehighlightedarea,youllseethatevenindownsidescenarios,the
valuationimplies,atworst,approximatelya15%discounttoMylanscurrentshareprice,andeach0.5%
inmargincontributesabout$1.00pershare,witheachadditional1.0%ofrevenuegrowthadding$1.25.
Themoreoptimisticscenariosandimpliedvaluesover$35.00persharearelesslikely,butfromthis
tableitcertainlyseemslikethepotentialupsideexceedsthepotentialdownside.
WehavealreadyshownthetablesfortheSpecialtySegmentrevenuegrowthvs.declineratesandthe
analysisofAgilasinitialrevenuegrowthanddeclinerateintheCatalystsection;thekeytakeawaysare
thattheSpecialtydeclinerateisalmostirrelevant,andthatadditionalupsidefromAgilacontributes
substantiallytoimpliedvaluation,ataround$1.25+pershareforeach5%ofinitialYear1revenue
growth.
Basedonourresearchandchannelchecks,webelievethereisahighlikelihoodthatactualrevenue
growthwillmeetorexceedthesenumbersduetoAgilasfavorablegeographicalsplitandstrong
competitiveadvantageinemergingmarkets.
InvestmentRisks
Thetopriskfactorsinclude:
1) TheAgilaacquisitionfailingtoclose;
2) Integrationbeingmorechallengingthanexpected(resultinginlowerrevenuegrowthand/or
margins);and
3) Thecompanysnewproductlaunchesforthecomingyear,suchasXeloda,generatinglower
thanexpectedrevenue.
Welladdresseachofthoseriskfactorsinturnandexplainhowtomitigatethem:
AgilaAcquisitionFailstoClose
IftheAgilaacquisitiondoesnotcloseorisheldupbyregulatoryapprovalorbyotherfactors,the
companymightbeworthclosertothe$25.00$30.00persharerange(seethetablesintheCatalysts
sectionabove).

Whilethatisnotdramaticallydifferentfromitscurrentpriceof$28.60,thereisachancethatthe
marketmayoverreactandsendthestockpricedown,orthatthestockpricecouldfallasthecompany
guidestolowerrevenueandEPSinFY2014asaresultofthedelay.
Tohedgeagainstthisrisk,wecouldbuyprotectiveputoptionsonMylansstockatastrikepriceof
$27.17(orsomethingclosetothat)tolimitourlossesto5%;thisisnotaninvestmentwithmassive
upside,sowedontseeareasontoacceptgreaterthan5%lossesifthepotentialgainisonly1015%.
IntegrationisMoreChallengingthanExpected/EmergingMarketsGrowMoreSlowly
Asshowninthetablesabove,thisinvestmentthesisisheavilydependentongrowthinemerging
marketsexceedingestimatesandtheAgilaacquisitionmakingasubstantialcontributiontorevenueand
operatingincomefromFY2014throughFY2017.
Ifthatdoesnothappen,thecompanysimpliedpersharevaluewouldbecloserto$25.00$30.00per
shareinthecasewhereinitialrevenuegrowthfromAgilaisbetween15%and30%andtheannual
revenuegrowthdeclinerateis3.0%5.0%ratherthanthe3.0%weveassumedinthebasecase.
Thatdoesntrepresentamassivepotentialloss,butwecouldhedgeagainstthisoutcomebylonginga
competitorwithlessexposuretoemergingmarkets,suchasActavis,orevenamuchlarger
pharmaceuticalscompanywithamorediversifiedpipeline,suchasPfizerorMerck.
NewProductLaunches(Xeloda)GeneratingLowerthanExpectedRevenue
Asshownabove,theanalysishereisdependentonsolidrevenuegrowthinMylansgenericssegment
goingintoFY2013andbeyondiftheinitialrevenuegrowthisinthe3.0%6.0%rangeratherthanthe
7.0%inourbasecase,andtheoperatingmarginfallsfrom16.5%tocloserto15.0%,thecompanys
impliedvaluepersharefallstothe$23.00$27.00range.
Thisisasizablediscounttothecompanyscurrent$28.60shareprice,sowecouldhedgeagainstthis
riskviaprotectiveputoptions(purchasedat$26.00$27.00strikeprices),orbylongingthestockofa
competitorthatisfocusedonothersegmentsofthepharmaceuticalsmarket,oronethatoffers
productsinthesamesegment(oralcancerdrugs)butwithmorecompetitivepricingorotherbenefits.
Thiswouldrequireadditionalresearchonthemarketandpeercompaniestoexecuteproperly.
TheWorstCaseScenario
Anotherriskisthatwecouldbewrongabouteverythingoutlinedabove,fromtherevenuegrowthrates
andmarginstotheacquisition,newproductlaunches,andmore.

Atrueworstcasescenariomightresultinanimpliedsharepriceofbetween$15.00and$20.00ifyou
assumedramaticallylowerrevenuegrowth,lowermargins,asignificantlyhigherdiscountrate,anda
terminalFCFgrowthrateoflessthan1.0%.
AssetsminusLiabilitiesonMylansBalanceSheetiscurrently$3.4billion,whichequatestoastockprice
of$8.60.
IfyousubtractoutIntangibleAssetsandGoodwill,however,thepictureisnotasfavorablesince
TangibleAssetsminusLiabilitiesisactuallyanegativenumberasisoftenthecaseforpharmaceutical
firmswithIPheavyportfolios.
SothereisnotmuchBalanceSheetprotection,butwecouldprotectagainsttheseextremedownside
scenariosviaprotectiveputoptions,longingthestockofpeercompaniessuchasActavis,orinvestingin
anothercompanyinthesectorwithadifferentgeographicaland/orproductfocus.
Additionally,thereisanotherwaytohedgeagainstthisextremedownsidewithMylan:sinceithas
acquiredsomanycompaniesinrecentyears,itcouldselloffanydivisionsthathavenotalreadybeen
fullyintegrated,orevenonesthathavebeenmorefullyintegrated(andacceptadiscounttomarket
valueforthem).
Wewouldneedtoconductadditionalresearchanddomorevaluationworkonwhatthesedivisions
mightbeworth,butthecompanyhasspentnearly$1billiononthesedealsinthepastseveralyears
onthesurface,thatisalsoalowpersharevalue,butpotentiallytheycouldbesoldforsignificantly
morethanthat$1billiondependingonhowmarketvalueshavechangedovertime.
ReturntoTop.
WhatNext?
Nowthatyouvecompletedthiscasestudy,lookedattheDCFanalysesforbothcompanies,andread
thisstockpitchabove,whatsnext?
Whatcanyoudotomastertheseconceptsandgetmorepracticewithallofthis?
HereswhatIrecommend:
1. FleshOuttheMissingPiecesHereForexample,doyourownchannelchecksandyourown
industryresearchandseeifyoucanconfirm/denysomeoftheseassumptions,oratleastmake
yourownargumentsfororagainstwhatwevelaidoutabove.
2. LearnHowtoCompletetheRestoftheValuationThisiscoveredintheFundamentals,
Advanced,andBIWSPremiumcoursesonthesite,aswellasintheindustryspecificcourses.I
recommendclickinghereandsigningupforthePremiumcoursetostartwith,soyoucansee
theadditionalcalculationsthatgointotheDCFanalysis,learnthemoreadvancedadditions,and
learnhowtoselectandrunthenumbersforpubliccompsandprecedenttransactions.
3. PracticewithYourOwnCompanyUsewhatyouvelearnedheretogenerateyourown
investmentideasandstockpitches,inanyindustryyoureinterestedin.Thesamestructure
alwaysapplies,butthemodelinputs,research,andvaluationwillbedifferent.Youcouldpick
Actavisanddoadeepdiveonthem,oryoucouldpickanyothercompanyorindustryyoure
interestedinandrepeatwhatwevedoneabove.
4. UseTheseSkillstoWinOffers/AdvanceontheJobTheabilitytoresearch,pitch,andsupport
yourinvestmentideasiscriticalinanyfieldoffinance,whetheryoureinterviewingforrolesasa
recentgraduateoryoureonthejobandyoureusingtheseideastoconvinceyourPMthat
yourecorrectandthatheshouldlistentoyourideas.And,ofcourse,beingabletopresenta
polishedcasestudyandwriteuplikethiswillgiveyouamassiveadvantageovereveryoneelse
ininterviews,andonthejob.
ReturntoTop.

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HedgeFund/HealthcareValuationCaseStudy:Mylan[MYL]vs.

$5,028 $5,583 $5,996 $6,416 $6,817 $7,192 $7,533 $7,835

(421) (434) (448) (461) (473)

782 807 832 856 879

70 129 193 255 344 454 586 739 908

7,296 7,975 8,341 8,722 9,103

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