Amid President Elect Donald Trump’s victory, stocks in the biotech sector are on an upturn now that the Clinton Administration will not be taking on the industry and attacking drug companies’ power to boost drug prices. As such, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) and Endo International plc – Ordinary Shares (NASDAQ:ENDP) stocks are benefiting in the aftermath of the contentious election.
While Barclays analyst remains sidelined on Valeant amid clear challenges without simple solutions, JMP analyst remains bullish on Endo after a robust third-quarter outperformance. Let’s take a closer look:
Valeant Pharmaceuticals Intl Inc
Valeant shares were surging forward 7% yesterday on the heels of the election. After delivering third-quarter earnings that were decent, but with a sharp fourth-quarter guidance cut, Barclays analyst Douglas Tsao reiterates an Equal Weight rating on shares of VRX with a $34 price target, which represents a 108% increase from current levels.
Though the troubled biotech giant anticipates core assets will experience both top-line and EBITDA line growth, the analyst predicts this will ultimately come up short in offsetting waning, weakening neurology and generics drivers. The analyst adds, “We anticipate this trend to continue into 2017, especially as brodalumab PDUFA date was pushed from November to February 19, 2017, which could be a significant product for the company.”
Tsao asserts, “3Q proved VRX’s challenges have no easy fix, despite increased transparency into the business. The cut to ’16 guidance wasn’t a surprise, but management indicating 4Q would be lower Q/Q and ’17 lower than ’16, left investors wondering how the company can get numbers moving up again.”
“We feel B/S and sales and marketing changes will remain a focus for VRX in the near term, especially in light of Moody’s downgrade after mgmt commentary indicating leverage would remain above 7.0x through 2017. On fundamentals, CEO Joe Papa noted he is bringing back “basics” of sales and marketing, skills he learned in the mid-80s, as a means to reset promotion efforts,” Tsao concludes.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, four-star analyst Douglas Tsao is ranked #534 out of 4,205 analysts. Tsao has a 53% success rate and realizes 8.2% in his yearly returns. When recommending VRX, Tsao loses 70.0% in average profits on the stock.
TipRanks analytics demonstrate BRX as a Hold. The 12-month price target stands at $24.50, marking a 52% upside from where the shares last closed.
Endo International plc – Ordinary Shares
Endo shares were rising 12% yesterday after a strong third-quarter beat with revenue and EPS that outclassed expectations. In reaction, JMP analyst Donald Ellis reiterates an Outperform rating on ENDP while reducing the price target from $44 to $34, which represents just under a 109% increase from where the shares last closed.
For the third quarter, ENDP posted $884.3 million in revenue, coming in above Ellis’ projection of $848.1 million and the Street’s $862.9 million. The company brought in EPS of $1.01, ahead of the analyst’s forecast for $0.79 and consensus of $0.81. ENDP maintained 2016 revenue guidance of $3.87 to $4.03 billion as well as EPS of $4.50 to $4.80, with 2017 guidance to be provided at the fourth-quarter earnings call.
Xiaflex, the firm’s drug used to treat Dupuytren’s contracture in adults, garnered $47.7 million in sales, far outclassing the analyst’s expectation for $39.9 million, with further expectations for “low double-digit growth for 2016.” The total U.S. generics business brought in $533.7 million, “in line” with the analyst’s forecast for $531.4 million.
Ellis believes, “Outperformance in the quarter was driven by strong contributions from Xiaflex and better than expected “other” branded sales. We lower our 2017 estimates due to additional generic pricing weakness expected in 2017.”
Furthermore, “We are impressed with the new CEO and the direction Endo is heading. Endo is a large multinational company with both outperforming and underperforming divisions. Generic reimbursement challenges continue but we believe they will stabilize in 2017. Twenty planned generic launches and 25-30 ANDA filings may offset pricing pressures in 2017. Near-term revenue drivers include potassium liquid and powder, Zetia, Seroquel, Vasostrict, and new 505(b)2 drug launches,” the analyst contends.
Additionally, Ellis underscores, “Endo is conducting a bottoms-up evaluation of all three of its businesses (Branded, Generic, International),” with Reuters indicating Endo is contemplating divesting Canadian business Paladin to Knight Therapeutics. The company presently has $7.7 billion in net debt.
As usual, we like to include the analyst’s track record when reporting on new analyst notes to give a perspective on the effect it has on stock performance. According to TipRanks, four-star analyst Donald Ellis is ranked #808 out of 4,205 analysts. Ellis has a 54% success rate and yields 15.5% in his annual returns. When suggesting ENDP, Ellis earns 6.5% in average profits on the stock.
TipRanks analytics indicate ENDP as a Buy. Out of 8 analysts polled by TipRanks, 4 are bullish on Endo stock and 4 remain sidelined. With a return potential for nearly 55%, the stock’s consensus target price stands at $25.20.