Canaccord Lifts Price Target on Valeant Pharmaceuticals Intl Inc (VRX), Cuts Endo International plc


Canaccord analysts are out with neutral standpoints on Valeant Pharmaceuticals Intl Inc (NYSE:VRX) and Endo International plc (NASDAQ:ENDP). However, while one analyst sees fit to lift the price target on Valeant amid recent sale of iNova business, the other cuts the price target on Endo as Opioid painkiller Opana ER may be pulled from market. Let’s take a closer look:

Valeant Pharmaceuticals: iNova Deal Represents a Good Strategic Move

Canaccord analyst Neil Maruoka raised his price target for Valeant shares to $14.00 (from $12.00), following the news that the drug maker has agreed to sell iNova Pharmaceuticals for $930 million in cash to a company jointly owned by funds advised and managed by Pacific Equity Partners and The Carlyle Group. However, the analyst believes that Valeant is still expected to experience several challenges and as such reiterates a Hold rating on the stock.

Maruoka commented, “We believe this is a good strategic move, as iNova was geographically non-core and not a central growth driver; nonetheless, we believe that this transaction is neutral to Valeant’s leverage ratio. iNova has grown to sell Rx and OTC products in 15 countries around the world and was originally purchased as Valeant’s Australian business in 2011 for A$700 million. Although details were not provided, we estimate that iNova generates ~$125 million of EBITDA, suggesting a ~7.5x multiple. And, while we view this transaction to be overall positive, we believe that it again underscores the challenges of driving accretive divestitures given Valeant’s elevated leverage.”

“Although this transaction is dilutive to valuation, we believe that, through this sale, Valeant has managed to reduce its debt burden without giving up a core growth driver. In our view, the company will have the opportunity to further reduce leverage by continuing to grow EBITDA next year, and has therefore managed to modestly lower its risk profile,” the analyst continued.

According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Neil Maruoka has a yearly average return of -1.3% and a 36% success rate. Maruoka has a -29.8% average return when recommending VRX, and is ranked #3757 out of 4572 analysts.

Out of the 14 analysts polled by TipRanks (in the past 3 months), two rate Valeant stock a Buy, nine rate the stock a Hold and 3 recommend to Sell. With a return potential of 39%, the stock’s consensus target price stands at $18.40.

Endo International: Opana ER Removal Will Have Modest Impact to Revenue

The FDA announced it has requested Endo to voluntarily remove its Opana ER brand from the market. This is based on the FDA’s review of all of the product’s post-marketing data noting the benefits of Opana ER no longer outweigh its risks.

Canaccord analyst Dewey Steadman stated, “While at this point FDA’s notice only serves as a request for the voluntary withdrawal of Opana ER from the market and Endo commented that it is reviewing its options, we believe the optics of a challenge to FDA would be far worse than the reality of a modest decrease to short-term revenue, especially given heightened awareness of the opioid abuse epidemic. That said, we expect only a modest impact to our revenue, EPS and valuation estimates given Opana ER revenue has been steadily declining for several quarters.”

As such, Steadman reiterates a Hold rating on Endo shares, while reducing the price target to $12.00 (from $14.00), which represents a potential downside of 13% from where the stock is currently trading.

According to TipRanks.com, analyst Dewey Steadman has a yearly average return of -1.9% and a 37.5% success rate. Steadman is ranked #3550 out of 4572 analysts.

The overwhelmingly majority of analyst still say Endo is a “Hold”. The average forecast is for the stock to hit $$15.40 in the coming months.