Philip Morris: Reviewing Vectura And Fertin Pharma Acquisitions; Reiterate Buy (Preview)

Company Update (PM US) (Buy)

Summary

• PM agreed to acquire Vectura for $1.2bn this morning; including Fertin Pharma last week, PM has spent $2bn in the last 2 weeks.

• Vectura and Fertin Pharma specialize in drug delivery solutions development and manufacturing, in inhaled and oral respectively.

• The acquisitions help PM's long-term strategic goals; including its "Beyond Nicotine" aspirations, they are likely to be slightly EPS-accretive.

• PM's Free Cash Flow can easily afford the acquisitions while still paying dividends and buying back shares as already planned.

• At $98.37, the stock is expected to generate a total return of 45% (12.3% annualized) in 3.5 years. The Dividend Yield is 4.9%. Buy.

Introduction

Philip Morris announced this morning (July 9) that it has agreed to acquire Vectura , a U.K. provider of inhaled drug delivery solutions, for £852m ($1.2bn) in cash.

This followed a similar agreement last week (on July 1) to acquire Fertin Pharma, a Danish provider of oral delivery systems for active ingredients, for $820…