Canaccord and Goldman Sachs are cautiously reigning in price targets on Valeant Pharmaceuticals Intl Inc (NYSE:VRX) and Gilead Sciences, Inc. (NASDAQ:GILD). Whereas one analyst spots a red flag ahead as investors scatter in the fray of Pershing Square’s tumultuous departure, removing its remaining position, another analyst updates his model to include Bictegravir. Let’s dive in:
Pershing Square Bids Valeant Adieu
Valeant shares are dipping 11% following media buzz that Pershing Square has slashed its last position in the troubled biotech giant at a price of approximately $11 per share for a total of 27.2 million shares. Though Pershing Square reps Bill Ackman and Steve Fraidin continue on VRX’s board until the giant’s Annual Meeting, they will leave afterward without standing for re-election.
In reaction, Canaccord analyst Neil Maruoka reiterates a Hold rating while lowering the price target from $17 to $12, which represents a 10% increase from where the shares last closed.
Maruoka elaborates, “This brings to a close Pershing’s relationship with Valeant that began with a concerted but failed effort to acquire Allergan in 2014. According to reports, Pershing felt that its investment in Valeant required a disproportionate amount of effort and it was unlikely that Pershing would recoup its losses. We believe Pershing’s move underscores our concerns about Valeant’s lower growth and challenges associated with its asset divestiture strategy.”
Overall, “We expect the stock will come under pressure today with elevated concerns around Pershing’s decision given its insider position. Given the recent increase in leverage and the consistently lagging growth, we are lowering our target price to US$12.00 (from US $17.00). For investors looking for an entry point, we would remain cautious and would instead look for improving growth trends and/or accretive asset sales before wading into the stock,” Maruoka concludes.
As usual, we recommend taking analyst notes with a grain of salt. According to TipRanks, Neil Maruoka is ranked #4,255 out of 4,517 analysts. Maruoka has a 38% success rate and faces a loss of 5.3% in his yearly returns. When suggesting VRX, Maruoka forfeits 29.8% in average profits on the stock.
TipRanks analytics demonstrate VRX as a Hold. Based on 15 analysts polled by TipRanks in the last 3 months, 2 rate a Buy on Valeant stock, 10 maintain a Hold, while 3 issue a Sell. The 12-month average price target stands at $16.55, marking a 52% upside from where the stock is currently trading.
Gilead Merits a Price Target Trim with BIC in the Picture
Goldman Sachs analyst Terence Flynn is out with a research report on Gilead after updating his sum-of-the-parts model that now adds Bictegravir, the biotech giant’s HIV integrase imhibitor, into the mix. As such, the analyst reiterates a Neutral rating on GILD while reducing the price target from $70 to $68, which aligns with current levels.
“GILD has underperformed YTD […] following lower-than-expected 2017 guidance for its hepC franchise, which it provided on February 7. Subsequently GILD presented positive Ph2 data for Bictegravir (BIC; unboosted integrase for HIV) and we add the drug to our model. We now model peak BIC STR sales of $5.6bn (incremental $3.1bn to GILD’s HIV franchise given cannibalization of Stribild and Genvoya sales); we also raise our Truvada sales on the PrEP opportunity and now project 2017-2020 HIV franchise CAGR of +4% vs. -5% prior. We also refresh our sum-of-the-parts (SOTP) analysis for GILD’s franchises (HIV vs. hepC) that looks at both EV/revenue and P/E ratios, […] Applying midrange comp multiples to our 2018 revenue projections (4-4.5x) implies GILD’s non-hepC business (mainly HIV) is worth $60bn to $67bn […] Applying comp P/E multiples implies that current share levels ascribe ~$39-$58 per share to the non-hepC franchise,” Flynn contends.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, five-star analyst Terence Flynn is ranked #379 out of 4,517 analysts. Flynn has a 74% success rate and yields 20.1% in his annual returns. When recommending GILD, Flynn earns 0.0% in average profits on the stock.
TipRanks analytics show GILD as a Buy. Out of 19 analysts polled by TipRanks in the last 3 months, 13 are bullish on Gilead stock and 6 remain sidelined. With a return potential of 22%, the stock’s consensus target price stands at $82.94.