Rodman & Renshaw Cuts Price Target on Valeant Pharmaceuticals Intl Inc (VRX) as Revenue Attrition Will Yield a Significant Impace


Valeant Pharmaceuticals Intl Inc (NYSE:VRX) shares are sinking almost 5% following the release of financial guidance that paints a murky picture for the troubled biotech giant for 2017. Rodman & Renshaw Ram Selvaraju not only believes these “weak projections leave little room to maneuver,” he also notes that the positive “near-term product launches will take time to mature.”

For 2017, the giant expects non-GAAP adjusted EBITDA of $3.55 to $3.7 billion. Taking under account the forecasted interest expense of $1.85 billion, the analyst notes VRX presently circles a two-to-one EBITDA-to-debt coverage ratio under the regulations of its senior debt covenants. “Accordingly, if performance were to weaken much further, servicing the company’s existing debt burden may become increasingly difficult,” continues the analyst.

On the heels of the less-than-stellar outlook, the analyst reiterates a Neutral rating on shares of VRX while reducing the price target from $23 to $17, which represents a 36% increase from where the stock is currently trading.

“Although Valeant reported 4Q16 revenues that narrowly beat our estimates, coming in at $2.4B vs. our projection of $2.29B, its guidance for 2017 remains indicative of further attrition in the company’s base businesses. We are therefore lowering our 2017 cash EPS estimate from $4.52 to $4.19, which also reflects the loss of revenue and earnings from the sale of certain dermatology brands to L’OrĂ©al and the divestiture of Dendreon to Sanpower Corp. Our FY2017 revenue estimate stands at roughly $8.5B. In the wake of the uninspiring guidance and continued evidence that substantial work needs to be done to return Valeant to a growth trajectory,” Selvaraju concludes.

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, one-star analyst Ram Selvaraju is ranked #3,930 out of 4,513 analysts. Selvaraju has a 40% success rate and forfeits 1.5% in his annual returns. However, when recommending VRX, Selvaraju gains 9.7% in average profits on the stock.

TipRanks analytics demonstrate VRX as a Hold. Based on 13 analysts polled by TipRanks in the last 3 months, 2 rate a Buy on Valeant stock, 8 maintain a Hold, while 3 issue a Sell on the stock. With a return potential of 26%, the stock’s consensus target stands at $16.67.

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