Nomura Weighs In On Two Pharmaceutical Giants: Valeant Pharmaceuticals Intl Inc (VRX), Endo International (ENDP)

Analyst Shibani Malhotra of Nomura Holdings is bullish on both Valeant Pharmaceuticals Intl Inc (NYSE:VRX) and Endo International (NASDAQ:ENDP), though for very different reasons. The analyst believes that CEO Pearson’s return is best case for Valeant, and views Endo’s extreme selloff as overdone. Let’s take a closer look.

Valeant Pharmaceuticals Intl Inc

In a research report released today, Nomura analyst Shibani Malhotra reiterated a Buy rating on shares of Valeant Pharma, with a price target of $175, after the company announced that J. Michael Pearson has recovered from severe pneumonia and is returning as the company’s CEO. As a result, the company has cancelled this morning’s conference call to discuss preliminary Q4 results.

Malhotra commented, “We view Pearson’s return as the best-case scenario for Valeant and its shareholders and believe his return bolsters the board and company’s credibility. We were also encouraged by the announcement that the board of directors has decided to separate the roles of Chairman and CEO, and Robert Ingram has been appointed as Chairman. We believe this decision demonstrates the board’s commitment to sound governance and view it as a meaningful gesture to shareholders, which could further bolster Valeant’s credibility within the financial community.”

“Separately however, we see Valeant’s decision to withdraw in 2016 guidance as disappointing given this was affirmed only recently, on 1/13. While we had expected updated guidance, we struggle to fully understand the rationale for removing guidance altogether. We hope to speak to management later today, to better understand the drivers for this decision,” the analyst continued.

According to, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Shibani Malhotra has a total average return of 9.7% and a 56% success rate. Malhotra has a -20% average return when recommending VRX, and is ranked #414 out of 3682 analysts.

Out of the 17 analysts polled by TipRanks (in the past 3 months), 9 rate Valeant stock a Buy, 7 rate the stock a Hold and 1 recommends a Sell. With a return potential of 95%, the stock’s consensus target price stands at $145.29.

Endo International

Shareholders of Endo are having a rough day as the company’s stock is falling nearly 18%, following the company’s announcement that it has increased its accrual for the legacy AMS mesh product liability by $834mn to a total of $2,086mn. Additionally, fourth-quarter results were not clean as gross margin was lower than expected and operating expenses were slightly higher than expected, which was offset by a tax benefit in the quarter.

However, Malhotra remains positive on the stock, reiterating a Buy rating and price target of $95, which implies an upside of 119% from current levels.

Malhotra commented: “While we understand that investors are increasingly risk averse given the sector and market weakness thus far in 2016, we view the 16% selloff as an overreaction and highlight that key branded franchises Xiaflex and Voltaren gel delivered record performance in 4Q15, while the Par generics business generated ~$359mn of revenues, and 2016 guidance implies the generics business is still growing at a mid-to-high-teens rate. Further, the Belbuca launch is underway and we see potential for the product to exceed current low expectations, offering an additional potential driver of organic growth in the branded business.”

“Net, we believe Endo’s fundamental underlying growth drivers remain intact, and we view current weakness as an opportunity to build/add to positions,” the analyst concluded.

Out of the 5 analysts polled by TipRanks (in the past 3 months), 3 rate Endo stock a Buy, while 2 rate the stock a Hold. With a return potential of 95%, the stock’s consensus target price stands at $85.20.

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