Valeant’s a Deep Shade of Grey

All eyes are on Valeant Pharmaceuticals Intl Inc (NYSE:VRX) as the Street wonders if this troubled biotech giant can shift course to regain investor confidence.

With the giant preparing to deliver its second-quarter showcase this morning, BTIG analyst Tim Chiang surveys staunchly from the sidelines, pinpointing “The Good,” “The Bad,” and “The Not So Ugly” that keep him middle-of-the-road for now on Valeant’s prospects.

Ahead of the bell, the analyst reiterates a Neutral rating on shares of VRX without suggesting a price target. (To watch Chiang’s track record, click here)

For the second quarter, the analyst projects revenues will reach $2,154 million and adjusted EPS will hit $0.82. However, the analyst fears the VRX team will be lowering outlook for revenue to $8.5 to $8.7 billion and adjusted EBITDA will be pulled back to $3.4 to $3.5 billion, coupled with asset sales.

Chiang spells out “The Good” for the giant: “In our view, management closing the sale of Dendreon for ~$820M, and announcing the sale of Inova for $930M should keep the Co. on track to getting to its debt pay down target of ~$5B. With the Co. holding ~$28.9B of debt as of the end of 1Q, we think additional asset sales will be necessary.”

However, Chiang just as easily recognizes the bearish case to be made for Valeant, commenting, “The Bad. On the flip side, we expect the Co.’s financial targets for revenue and adjusted EBITDA will need to be adjusted down. […] In addition, while the Bausch + Lomb / International business unit could continue to show growth in 2Q, we expect YOY declines in revenue for Branded Rx (a decline of~ 13-14% YOY) and Diversified Products (decline of ~35% YOY).”

Overall, Valeant is a mixed bag, a grey spectrum of good, bad, and the in between. The analyst concludes highlighting “The Not So Ugly,” noting, “It appears that volume trends for a number of the key GI products have improved in 2Q17 vs. 1Q17, including Xifaxan, Apriso, and Relistor.”

For 2017, the analyst’s projections take under account the Salix segment generating $1,446 million in revenue with the second quarter indicating a 9.4% year-over-year dip and the third quarter factoring in a 4.8% year-over-year pull-back. In the first quarter, Salix sales saw a 11% year-over-year decline.

TipRanks analytics demonstrate VRX as a Hold. Out of 15 analysts polled by TipRanks in the last 3 months, 3 are bullish on Valeant stock, 9 remain sidelined, and 3 are bearish on the stock. With a return potential of nearly 10%, the stock’s consensus target price stands at $16.85.

It Doesn’t Look Too Good for Teva Investors

Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) shares saw another 10% crash yesterday after already experiencing a stark 13% plunge Friday in the wake of a ghastly second-quarter earnings rumble.

Morgan Stanley analyst David Risinger now joins the slew of four others on Wall Street who have struck at the biotech giant with rating retreats.

In reaction to Teva’s dismal quarterly performance and diminished prospects moving forward amid a cutthroat generic pricing arena, the analyst is now out sounding the alarm on Teva, downgrading from Equal Weight to an Underweight rating with a price target of $16, which implies a just under 14% downside from where the shares last closed. (To watch Risinger’s track record, click here)

Risinger contends, “We underappreciated the risk of generics pricing pressure to Teva’s earnings and dividend, and we expect Teva to continue to underperform given overhangs. We believe that Teva’s disappointing generic business performance will take more time to improve given a combination of the generic industry’s intensifying secular challenges and Teva’s own difficulty in executing on its pipeline. Core business generic headwinds and looming generic competition to Teva’s top franchise (Copaxone) are likely to weigh on Teva’s long-term earnings power and keep its leverage high through 2020 (est ~4x net debt/EBITDA from 2017-19), which will constrain Teva’s ability to acquire future growth drivers. Despite the stock collapsing by 34% since 2Q:17 results on Aug 3, we believe Teva’s current ~8.2x EV/2018e EBITDA (using EV of $56B from $22B market cap and $34B net debt plus preferred shares divided by EBITDA of $6.9B) is still too high as the multiple is marginally above than 5-year historical average of 8x, which includes 2014-2015 – during which time the generic industry enjoyed price inflation and gCopaxone risk was further away.”

TipRanks analytics indicate TEVA as a Hold. Based on 13 analysts polled by TipRanks in the last 3 months, 1 rates a Buy on Teva stock, 10 maintain a Hold, while 2 issue a Sell. The 12-month average price target stands at $30.36, marking a 63% upside from where the stock is currently trading.