Mallinckrodt investor worries ‘worthy of concern,’ says Wells Fargo

Wells Fargo analyst David Maris attrubites the 7% selloff yesterday in shares of Mallinckrodt to investors recognizing that the spin-off process could take at least six months and the proceeds previously expected from a sale will now come in the form of levering the spin with debt. Furthering pressing the shares could the realiztioin that the company’s opioid and environmental liabilities may not have been fully appreciated, Maris tells investors in a research note partially titled “Questions, But A Reasonable Alternative.” The fact that the generics business now has to be consolidated after being reported as a discontinued operation, only to be taken out again when the spin is completed is also challenging for some investors, Maris writes. The analyst, while admitting Mallinckrodt’s current cash flow is “very appealing,” acknowledges that the re-consolidation and then spin of the generics unit, pending competition of Inomax in 2019, and investor worries about Acthar is “worthy of concern.” He maintains a Market Perform rating on Mallinckrodt shares with a $27 price target.

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