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2018 Guide Shows Valeant Pharmaceuticals Intl Inc (VRX) Still in the Woods for “Another Turnaround Year”

Though H.C. Wainwright's Ram Selvaraju cuts his 12-month price target on VRX, he still angles for 6% in upside potential for the stock.


Valeant Pharmaceuticals Intl Inc (NYSE:VRX) just released a fourth quarter print and 2017 results that even a bull is calling “uninspiring.” In reaction, shares have been diving 8% in trading today.

H.C. Wainwright Ram Selvaraju anticipates that this quarterly print indicates “headwinds” lie ahead this year on back of more losses of exclusivity (LOEs) coupled with the rocky effects of divestitures held last year. To add insult to injury, it is unlikely this can be offset by prospective new drug launches. This year looks to be “another turnaround year” waiting in the wings for Valeant, wagers Selvaraju. In other words, the troubled biotech giant is simply “not out of the woods [quite] yet.”

Therefore, the analyst reiterates a Neutral rating on VRX stock while dialing back the price target from $18 to $16, which implies a 6% upside from current levels.

For the fourth quarter, VRX posted $513 million in net income, which on a positive note far outclassed the analyst’s expectations. However, the top-line revenue fell far under the analyst’s $2.23 billion forecast with just $2.16 billion, and full-year revenue for 2017 of $8.72 billion came up shy of the analyst’s $8.79 billion estimate.

“We note that this came in what is typically a relatively strong period for Valeant, and accordingly reflects some sequentially down performance vs. 3Q17,” underscores the analyst.

The guide for 2018 also has investors worried. Valeant’s top-line revenue outlook of $8.1 to $8.3 billion for 2018 falls short of the analyst’s original $8.56 billion projection. Consider also that the adjusted EBITDA guide of $3.05 to $3.2 billion is “down substantially” against the 2017 adjusted EBITDA posted of around $3.7 billion.

Not all hope is lost, as though Selvaraju remains on the sidelines, he clings to optimism all the same: “On the other hand, we feel it would be appropriate at this juncture to remark upon Valeant management’s achievements in aggressively paying down debt, refinancing the remaining debt stack to extend maturities, generating more operating and strategic flexibility, and revitalizing the company’s late-stage pipeline. In our view, 2019 should constitute a period of operational growth vs. 2018 and Valeant’s operating performance should markedly improve in the years beyond as the impact of new product launches and continued debt reduction begins to be realized.”

TipRanks points to a largely cautious analyst consensus pool surveying the beleaguered biotech giant’s prospects. Out of 11 analysts polled in the last 3 months, 3 rate a Buy on VRX stock, 4 maintain a Hold, while 4 issue a Sell on the stock. With a return potential of 28%, the stock’s consensus target price stands at $19.57.