Valeant Pharmaceuticals Intl Inc (VRX) 3Q Beat Is a Case of Execution Done Right, Says Louise Chen

It's a win for the bulls as VRX's execution and robust growth down the line bode well for the giant's future.


The Valeant Pharmaceuticals Intl Inc (NYSE:VRX) team may have had its hands full dealing with a turbulent battle of negative publicity, legal contentions, and debt, but investors were thrilled to see a clearing in the woods with yesterday morning’s third quarter outperformance.

In reaction, shares were sent rising 17% yesterday and long-time bull Cantor analyst Louise Chen, who has been rooting for the troubled biotech giant’s success without wavering for four years now, praises the company’s recent “effort” for driving the beat.

With investor sentiment now resurging, Chen believes, “We think a greater appreciation for Valeant’s solid execution and future growth prospects should drive upwards earnings revisions as well as multiple expansion in 2019+.”

On the heels of the earnings outclass, the analyst maintains an Overweight rating on VRX stock with a $23 price target, which represents a 63% increase from where the shares last closed. (To watch Chen’s track record, click here)

For the third quarter, Valeant’s EPS of $1.05 shot 15 cents ahead of FactSet consensus and soared 28 cents higher than Chen’s expectations. Meanwhile, the biotech giant reiterates its EBITDA guide for the year, ranging between $3,600 million between $3,750 million, with a midpoint of $3,675 million higher than FactSet consensus of $3,555 million. Notably, Valeant has maintained its outlook “despite the impact of divestitures VRX has made this year,” writes the analyst, who adds, “This is important because it underscores that the leverage ratio for VRX is coming down, and VRX’s high leverage ratio has been an overhang on the stock, in our view. We have updated our model for 3Q17, which increased our 2017 EPS estimate.”

Other key bullish elements of Valeant’s impressive quarterly performance for Chen point to boosted revenue in the Bausch + Lomb/International segment by 1% compared to this time last year. In fact, not taking under account foreign exchange volatility or divestitures, revenue experienced organic growth to the tune of 6%. Meanwhile, the Salex segment likewise saw revenue growth, 3% compared to this time last year and 6% organically.

The analyst likewise commends Valeant’s persistent “focus on stabilizing the Ortho Dermatologics business” as well as the elimination of all long-term debt maturities for the next through years, with all mandatory amortization requirements wiped from the slate as of yesterday, where VRX’s fixed rate stands at roughly 80%. As of the end of September, Valeant’s cash and equivalents had reached $1.969 billion, with around $980 million in availability under VRX’s Resolving Credit Facility as of October 30th.

On a final note, even if numbers need to be lowered, it will not be a shock to the Street: “We think that 2018 FactSet consensus sales and EBITDA may have to come down as a result of LOEs (loss of exclusivities) and product divestitures, but this is already anticipated by the Street,” Chen concludes.

Not every analyst is so decidedly in Valeant’s corner with Wall Street a torn battle between the bulls and the bears. TipRanks analytics indicate VRX as a Hold. Based on 13 analysts polled in the last 3 months, 3 rate a Buy on Valeant stock, 7 maintain a Hold, while 3 issue a Sell on the stock. The 12-month average price target stands at $19.36, marking a 37% upside from where the stock is currently trading.