Bearish Valeant Pharmaceuticals Intl Inc (VRX) Analyst Sent Shares Tumbling

Goldman Sachs' Dana Flanders sheds new insights on Valeant from a bearish standpoint, spotting 5% in loss potential for the stock.


Valeant Pharmaceuticals Intl Inc (NYSE:VRX) investors have driven the stock down almost 15% in the last two days- ever since word got out of a new bear on the Wall Street block who sees the risky writing on the wall.

This is a case where Valeant’s short-term growth outlook is not looking too hot as rivalry applies strain to the company’s key assets, writes Goldman Sachs analyst Dana Flanders. For a beleaguered biotech giant trading ahead of its peer group even in face of a “less favorable” growth outlook, the analyst is out initiating bearish coverage.

Finding that the sum-of-the-parts (SOTP) analysis suggests loss potential, the analyst initiates a Sell rating on VRX stock with a price target of $18, which implies a 5% downside from current levels. (To watch Flanders’ track record, click here)

“VRX as shares have re-rated (10x 2018 EBITDA) above the peer group, yet VRX faces high leverage (>7x), outstanding litigation risk and competition across a number of key products driving a muted overall growth rate (3-year sales/adj. EPS CAGR of 0%/-4%),” Flanders explains.

Overall, other opportunities just seem more promising than this troubled giant, as far as the analyst is concerned: “VRX has made significant progress in de-risking the business, in our view, by executing on its core growth drivers (B&L, Xifaxan), selling assets to reduce debt, extending near-term maturities and beginning to move past legacy legal issues, driving a 2H17 recovery and multiple re-rating (~10.5x 2018 EBITDA) above the peer group. However, VRX still faces a >7x levered balance sheet and ongoing litigation risk, while the overall near-term growth outlook is muted as competition pressures key products. Consensus 2018 EBITDA has moved lower in recent months reflecting these challenges (we are ~3% below), but we see better long-term opportunity elsewhere in our coverage.”

TipRanks shows a bearish Wall Street consensus opting to sound the alarm when it comes to Valeant’s market opportunity. Based on 11 analysts polled in the last 3 months, just 2 are bullish on Valeant’s stock’s recovery prospects, with 4 on the sidelines, and 5 running for the hills. The 12-month average price target of $17.44 suggests downside potential of 8%, which indicates the Street is unconvinced that this giant is worth the gamble- at least not yet.

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