Valeant Pharmaceuticals Intl Inc (VRX) Refinancing Leads to Price Target Cut, But Value Remains

RBC Capital analyst Douglas Miehm weighed in on Valeant Pharmaceuticals Intl Inc (NYSE:VRX), after the struggling drug maker announced that it has closed its balance sheet refinancing transactions, marking the conclusion of a series of strategic steps undertaken over the past year to transform the Company.

Following a modest increase in net debt, Miehm reduced his price target to $18.00 (from $21.00), while reiterating a Sector Perform rating on VRX. The new target represents a potential upside of 67% from where the stock is currently trading.

Miehm commented, “The recent refinancing has removed financial maintenance covenants from VRX’s term loans, which provides the company with additional flexibility. We have updated our model to account for the recent refinancing, with 2017E year-end net debt of $26.6B (prev. $26.4B) and 2018E year-end net debt of $25.3B (prev. $24.8B).”

Subsequently, the analyst has adjusted his outlook for Siliq, the company’s drug to treat plaque psoriasis. Miehm noted, “We ultimately forecast a 60–70% peak profit margin on Siliq. Our prior forecasts had 50% of revenues recognized by Valeant. We note that our Siliq revenues actually decrease from $39MM to $34MM in 2017E due to a slightly slower launch and increase from $170MM to $200MM in 2018E. Our new revenues for Siliq reflect ~50–70% of the expected Taltz revenues over the initial 18 months of its ongoing launch, which reflects the more onerous label for Siliq. We now have a $9MM incremental expense in 2017E and $55MM in 2018E associated with AZ profit sharing.”

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Douglas Miehm has a yearly average return of -11% and a 40% success rate. Miehm has a -21.4% average return when recommending VRX, and is ranked #4335 out of 4552 analysts.

Out of the 18 analysts polled by TipRanks, in the past 3 months, 3 rate Valeant stock a Buy, 9 rate the stock a Hold and 3 recommend to Sell. With a return potential of nearly 40%, the stock’s consensus target price stands at $15.


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