Valeant (VRX): Getting Better? Maybe

While Valeant shows signs of a rebound, RBC Capital's Douglas Miehm remains sidelined.


Valeant Pharmaceuticals Intl Inc (NYSE:VRX) exhibited a killer first quarter earnings beat and guidance raise on Tuesday that not only sent shares to soar 5%, but has earned a boost in confidence from sidelined RBC Capital analyst Douglas Miehm.

The analyst reiterates a Sector Perform rating on VRX stock while bumping up the price target from $18 to $19, which nonetheless implies a close to 6% downside from current levels. (To watch Miehm’s track record, click here)

For the first quarter, the comeback biotech giant served up $2.00 billion in revenues, towering above the analyst’s expectations calling for $1.92 billion and the Street’s $1.95 billion. Valeant achieved $832 million in adjusted EBITDA, trouncing the analyst’s $736 million and the Street’s $727 million. This strength largely rides a wave of more robust revenues couples with operating expenses that were not as lofty as Miehm had expected.

Even “more importantly” to Miehm is the guidance jump for 2018, where the company now angles for $8.15 to $8.35 billion in revenues and $3.15 to $3.30 billion in adjusted EBITDA. Before, the VRX team called for $8.10 to $8.30 billion in revenues and $3.05 to $3.20 billion in adjusted EBITDA. Miehm always found the initial guide “conservative to begin with, noting, “The raise itself is consistent with our thinking, albeit somewhat sooner than we anticipated.” Though the raise is not a surprise, the analyst felt odds were higher for a guidance raise come second quarter. “The raise was associated with an improved fundamental outlook for the LOE basket and base business (including Xifaxan), rather than delayed LOE timing,” underscores Miehm. On back of the new numbers, the analyst lifts his 2018 revenue expectations from $8.25 to $8.27 billion and adjusted EBITDA from $3.24 to $3.33 billion.

In a nutshell, Valeant’s “turnaround continues,” but the analyst continues “on the sidelines,” concluding: “Overall, we believe the quarter highlights the continued turnaround the company has made from an operational and capital structure perspective. We note that Y/Y performance metrics benefited from a weak Q1/17 (specifically in Salix), and we now look for sustained outperformance, plus new launch characteristics before revisiting our outlook. Additionally, the company’s premium to spec pharma peers and pro-forma 7.1x net debt/ EBITDA keeps us on the sidelines.”

TipRanks suggests caution looms over this challenged biotech giant. Out of 13 analysts polled in the last 3 months, 3 are bullish on VRX stock, 6 remain sidelined, while 4 are bearish on the stock. With a loss potential of 12%, the stock’s consensus target price of $17.77 clearly reflects some apprehension baked into these wary analysts’ expectations.

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