Valeant Pharmaceuticals Intl Inc (VRX) Draws a Price Target Lift from Neil Maruoka Ahead of 4Q Earnings

Canaccord's Neil Maruoka jumps up his price target on VRX, but even with more optimism, still angles for 5% downside potential from the stock.


As Valeant Pharmaceuticals Intl Inc (NYSE:VRX) sets up to deliver its fourth quarter print come Wednesday, one analyst is jumping up his confidence on the biotech giant.

Canaccord analyst Neil Maruoka is not blind to generics competition swimming around VRX, but he likewise values that the company is making way in unloading its massive debt shackles.

In a cautious yet optimistic quarterly preview, the analyst reiterates a Hold rating on VRX stock while hiking the price target from $16 to $18, which implies a close to 5% downside from current levels. (To watch Maruoka’s track record, click here)

For the fourth quarter, Maruoka looks for $2.22 billion in revenue from the giant and $865 billion in adjusted EBITDA, against the Street’s expectations for $2.17 billion in revenue and $872 million in adjusted EBITDA.

Maruoka notes, “While the company has continued to drive steady growth from core franchises, we will look for durable growth from Xifaxan, SILIQ, and Vyzulta going forward. Prescription trends for SILIQ have shown stronger momentum lately, but we note this product launch is unlikely to have a meaningful impact on the quarter or the year. Looking ahead, we have modestly tempered our estimates for 2018 to reflect the threat of generic competition; however, this is more than offset in our valuation by reduced leverage as Valeant has repaid ~ $2 billion of debt over the past few months. Following these changes to our model, our DCF analysis results in a valuation of $18.17 per share.”

Ultimately, “De-leveraging positively impacts valuation,” surmises the analyst, asserting: “Going into the quarter, we have updated our model to reflect ~$2.0 billion of debt repayments over the past few months. These changes have positively impacted our valuation as a substantial portion was paid from operating cash flow; the reduced leverage has eliminated an estimated $120 million of annual interest expense.”

Yet, with generics rivalry still posing quite a threat, the analyst likewise dials back his revenue expectations from $8.67 billion to $8.43 billion and adjusted EBITDA from $3.60 billion to $3.46 billion.

TipRanks highlights Wall Street is torn on betting on this beleaguered biotech giant. Out of 8 analysts polled in the last 3 months, only 2 are bullish on VRX stock, 2 remain sidelined, while 4 are bearish on the stock. The 12-month average price target stands at $18.50, essentially aligning with where the stock is currently trading.

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