Louise Chen Predicts What’s In Store For Valeant Pharmaceuticals Intl Inc (VRX) Ahead of Earnings

Cantor's Louise Chen: Valeant will look more interesting as long-term investment.


In a research report issued yesterday, Cantor analyst Louise Chen highlighted what to look for when Valeant Pharmaceuticals Intl Inc (NYSE:VRX) reports fourth quarter earnings and the setup going into 2018.

Valeant stock hit a record high of $263.81/share in 2015 and is currently trading near $23/share. The stock is prone to big moves after reporting earnings and can easily gap up if the numbers are strong. Conversely, if the numbers disappoint, the stock can easily gap down. To help you prepare, here is what Chen is expecting:

“Although Valeant has not yet given guidance for 2018, the company anticipates more R&D spend in 2018 versus 2017 and less than ~$948MM of a total sales headwind in 2018. For VRX, we estimate sales of $8.1B and EBITDA of $3.1B for 2018. Consensus is $8.5B and $3.4B, respectively.”

“Although Valeant appears to be making good progress toward its goals, the stock is underowned by equity investors because of its high debt-to-EBITDA ratio, and lack of visibility into what EBITDA may be in 2018, given headwinds from annualizing LOEs (loss of exclusivities) as well as sales lost to product divestitures. The Street is modeling a revenue decline of 2.9% for 2018, with an EBITDA decline of around 6.5% and a similar decline in EPS. We think that numbers have to come down relative to the consensus, but that such a downward earnings revision is already anticipated by the Street.”

Bottom line: “We think the Street will want to see the positive trends for the year continue through 4Q17 and into 2018 for the stock to continue to perform. This would include strong organic growth for B&L and Salix.”

Chen reiterates an Overweight rating and $25 price target on VRX shares. (To watch Chen’s track record, click here)

Overall, Wall Street is not rooting for the drug maker stock’s success, earning a weak analyst consensus rating. TipRanks analytics exhibit VRX as a Sell. Based on 10 analysts polled in the last 3 months, 1 maintains a Buy on Valeant stock while 5 issue a Hold, and 5 recommend to get rid of the stock. The 12-month average price target stands at $15.75, marking a nearly 32% downside from where the stock is currently trading.

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