Analyst David Risinger from Morgan Stanley presented five questions he would like to see answered in Valeant Pharmaceuticals Intl Inc (NYSE:VRX) upcoming earnings report on August 9th. In addition, Risinger expects to see EPS of $1.50 reported for the second quarter and for the company to lower its guidance.

His first question for Valeant is how it will be able to grow revenues while cutting SG&A, which stands for Selling, General and Administrative Expenses. Valeant’s management expects to have SG&A be 26% of sales, but Risinger’s estimates have it at 28%. The analyst feels that the “implied SG&A per quarter for 2H:16 would have to be at pre-Salix levels” in order for management’s expectation to be correct. Risinger expects guidance to be lowered unless revenues grow more than anticipated or Valeant finds away to significantly cut costs.

His second question is regarding Valeant’s cash flow. Valeant recorded $558 million in operating cash flow in the first quarter. For the entire year, the analyst anticipates to see $1.6 billion in free cash flow, but there are a few issues. Valeant is the only company the analyst covers “that disclose price appreciation true-ups” which represented 20% of the company’s cash flow last quarter. Additionally, Valeant’s free cash flow is small compared to its $32 billion debt.

The analyst is also worried if Valeant will have to breach its maintenance covenants. If the company has to lower guidance again, “covenant limits could come into question.” The minimum EBITDA under the secured leverage covenant is $4.8 billion, while the investors estimate EBITDA of $4.6 billion investors have to consider that “covenants are tested quarterly on a ttm basis.” Additionally, the analyst is unsure how much debt Valeant paid off in the second quarter. Risinger does note that “Valeant could negotiate a further amendment with lenders if needed” so this isn’t an immediate issue.

Risinger’s fourth question is about what product Valeant will divest from and how this will affects its bottom line. The analyst believes that the company has to divest from an asset in order to get decrease its debt levels. On one hand, the company will be looking to sell a “non-core” asset, but an asset like this is not worth much. If Valeant elected to sell a more substantial asset, it would get higher value but its bottom line would take a hit. Risinger thinks that Valeant will decide to “sell US OTC/Consumer and ex-U.S. branded-generic assets.”

Lastly, the analyst wants to hear about Valeant’s new partnership with Walgreens. It enlisted help of a CoverMyMeds in June to “clear prior authorization hurdles” and the analyst wants to see how this affected sales. On top of that, Risinger is “interested in learning whether Valeant will follow through on the plan to sell select brands at generic prices and whether Valeant will adjust its contact with Walgreens.”

The analyst maintained his Equal-weight rating with a price target of $33, marking a 56% increase from current levels

According to TipRanks, Risinger has a yearly average return of 1.6% and a 56% success rate. The analyst has a 4.4% average loss when recommending VRX, and is ranked #1,555 out of 4,071 analysts.

TipRanks shows that out of the 17 analysts who rated VRX in the last 3 months, 29% gave a Buy rating, 53% gave a Hold rating and 18% gave a Sell rating. The average 12-month price target for the stock is $40.77, marking a 92.58% upside from current levels.