Shareholders are not very pleased with Allergan plc (NYSE:AGN) after it reported first-quarter results for 2018. The big write-down overshadowed the company’s revenue increase and higher guidance. Allergan stock is worth a second look.

Selling its remaining stake for 34 million shares in Teva Pharmaceutical Industries Limited (NYSE:TEVA) gives Allergan some cash buffer, something that markets should not overlook.

Allergan’s sale of Teva stock is unfortunately timed because of Teva’s drop from the $30 range since selling its generics unit. But the divestiture is still net positive for Allergan.

Not only did Teva overpay for it but its Copaxone went off patent protection. The government’s attack on generic drug pricing worsened the situation. Allergan stock now sets its future now on managing costs, keeping its core business in botox healthy, and developing new drugs.

Cost Management

Allergan limited R&D spending in the quarter to $1,587 billion, up just 6.5 percent. SG&A fell 9.1 percent to $1,223.7 million. With revenue going up 2.1 percent from last year, the company grew revenue by 17.1 percent to $864 million.

Looking ahead to the 2018 year, the company raised its revenue slightly, in the range of $15.15 billion – $15.35 billion. Earnings may top $2.81 a share, compared to $2.21 previously. In the current period (Q2), Allergan forecasts EPS of $0.48 – $0.69 a share.

Had it not write down the buyout of Vitae and recorded a $535 million impairment charge, Allergan would probably trade sharply higher after its quarterly report. Instead, the Phase 2 program for the candidate VTP-43742, which treats psoriasis, is now getting written off.

The concerns over safety, plus a lack of proof the drug (candidate VTP-385543) benefited patients suffering from atopic dermatitis, forced management to end the drug’s research program. This news should help two other pharmaceutical companies: Valeant Pharmaceuticals International, Inc. (NYSE:VRX), whose Siliq drug treats psoriasis but has a black label and Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN).

Regeneron is falling steadily after its partner, Sanofi (NYSE:SNY), reported quarterly earnings indicating weak sales for Dupixent, a drug treating atopic dermatitis and Eylea, which treats rheumatoid arthritis.

So for investors of Allergan stock, the value of a company having multiple core products cannot be understated. Allergan’s Coolscuplting, Botox, Alloderm, and many other drugs are doing well. It is advancing its R&D pipeline for drugs treating acute migraine (Ubrogepant) and Cariprazine, which treats Bipolar I Depression.

The addition of Alloderm and the strong performance of Botox helped Allergan grow revenue to$1.58 billion, or up 6.5 percent for the Specialized Therapeutics division. For example, the Botox revenue line added around $250 million in revenue, up from around $216 million.

Allergan Stock Stuck at $155

Does it make rational sense that Allergan is not breaking out above $160 a share after the good quarter? The stock’s forward P/E valuation is under 10 times (at 9.8 times). The 12.6 times P/FCF multiple fairly values Allergan at this time because earnings will only grow in the single digits this year and in the next five years.

Debt is more than manageable, at 0.44 times equity but the company needed a blockbuster drug candidate in a big addressable market to accelerate its growth.

Without a drug in psoriasis or atopic dermatitis market, growth is limited. Regeneron and Sanofi, and even Valeant are potentially the biggest players in this space. If they rebound and insurance companies are more receptive to covering the expensive Dupixent drug, then Allergan will act more like a slow income stock than as a growth play.

Valuation and Takeaway on Allergan Stock

Wall Street values Allergan at $210 a share, compared to the average finbox.io fair value model of $166 a share. Steady increases in sales are not enough from the company that divested its generics unit to grow the core business. So long as management does not embark on silly, expensive acquisitions like buying Shire Pharmaceuticals, Allergan should not have more downside.

Disclosure: Author does not own any stock mentioned in this article.