Valeant: Challenges Pose Significant Downside Risk

Mizuho analyst Irina Rivkind Koffler remains bearish on Valeant Pharmaceuticals Intl Inc (NYSE:VRX) stock despite recent rally. Koffler reiterates an Underperform rating on VRX, with a price target of $8.00, which represents a potential downside of 42% from where the stock is currently trading.

Koffler explains, “We think it’s unlikely that management will lower guidance in 2Q:17 because recently announced deals like iNova or Dendreon may not close until year-end. Despite our below-consensus forecast, we note the quarter should benefit from easy comps because last year Valeant reported low selling prices in its dermatology unit that have since been rectified, and a higher degree of R&D investment. We expect the situation to reverse in 3Q:17 because comps will be challenging (last year had a significant sell-in of Xifaxan into hospitals) and because there will be increased visibility into a declining 2018 vs. more optimistic consensus estimates.”

The analyst continued, “At a recent investor conference, management discussed de-levering below 5x to allow the company to start buying new assets. We struggle to comprehend how the company will bring debt down by approximately $8 billion while simultaneously growing its EBITDA by another $1.0 billion (to ~$4 billion) with its existing asset base (including divestitures) and pipeline. Another billion dollars in EBITDA would likely require over $2 billion in revenue if it came from high-margin branded assets, in our view, which may be challenging to achieve over the next 1-3 years.”

According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Irina Rivkind Koffler has a yearly average return of 18.4% and a 54% success rate. Koffler has a 18% average return when recommending VRX, and is ranked #118 out of 4569 analysts.

Out of the 16 analysts polled by TipRanks (in the past 12 months), 3 rate Valeant stock a Buy, 10 rate the stock a Hold and 3 recommend to Sell. With a return potential of 33%, the stock’s consensus target price stands at $18.25.

Amazon’s Working to Boost Its Apparel Sales

Yesterday, Amazon introduced Prime Wardrobe, a new service that lets Prime members try on clothing and accessories before buying them. Prime Wardrobe will offer clothes from “over 1 million” brands ranging from Levi’s to Calvin Klein.

KeyBanc analyst Edward Yruma noted, “The service is similar to Trunk Club and Stitch Fix and gives the consumer seven days to try items on at home. Returns can be left on the front door for pickup, and shipping is free both ways. Items are marked as “Prime Wardrobe” on Amazon Fashion (over one million items) and a customer must select three or more items. Amazon has been very aggressive in its apparel push in recent months, expanding its private label offering, introducing Echo Look (camera and style assistant) and now Prime Wardrobe. We peg Amazon apparel sales at over $14B.”

“Most notably, Amazon Wardrobe will offer discounts for consumers that keep multiple items […] We think incentivizing consumers to take multiple units (similar to Walmart’s Jet.com) is critical to help lower shipping/handling costs long term and drive more sustainable e-commerce business models,” the analyst added.

Yruma rates Amazon shares a Sector Perform, without providing a price target.

According to TipRanks.com, Yruma has a yearly average return of 2.7% and a 52% success rate. Yruma has a 23.9% average return when recommending AMZN, and is ranked #1645 out of 4569 analysts.

Out of the 32 analysts polled by TipRanks (in the past 3 months), 29 rate Amazon stock a Buy, while 3 rate the stock a Hold. With a return potential of 13%, the stock’s consensus target price stands at $1,122.27.