ALR

Publicly traded companies mentioned herein: Abbott Laboratories (ABT), Alere Inc (ALR)

Highlights

The presenter is short shares of Alere (ALR) and thinks the risk/ reward favors bears with the stock trading in the high-$30s ($38-39). In his opinion, working through the dynamics of ALR’s fundamentals and the pending deal with Abbott leads him to the conclusion that the timing is good and there is very little risk to the short position because a) the probability of the deal closing as-is (at $55/ share) is low; b) the deal could be re-cut in the mid-$40s (effectively capping the upside risk to ~$5-6); and c) investors will get to see full year 2016 results and have an early look at 2017 when Alere reports in early February (projected date). Overall fundamentals across the diagnostics sector were weak in Q3 2016 and projections were brought down. There is no reason to think ALR is immune to the trends impacting its peers. The presenter is modeling no top line growth and no margin expansion for Alere in 2017 and this results in $1.85-2.00 of EPS (versus the Street at $2.25). Using 10-13x for his downside case yields a $23 fair value for the stock.