RBC Capital Bets Valeant’s Safe 2018 Guide Gets Boosted Come Q2 Earnings

RBC Capital's Douglas Miehm anticipates Wall Street could be discounting a first quarter guidance lift considering latest VRX share price performance.


RBC Capital analyst Douglas Miehm expects Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is bound to bump up its full-year outlook. The question is: will it be next Tuesday when the biotech giant posts its first quarter print of the year, or will the VRX team opt to wait until second quarter results?

VRX may be in standing to lift its guide in the first quarter, but Miehm says odds are on the second quarter. First, VRX would have more data on new launches. Second, the company should have further insight into the timing of the Uceris and Apriso generics. “Based on recent share price performance (+22% since early March), the market may already be discounting an increase in guidance in Q1,” highlights Miehm.

Ahead of the print, the analyst reiterates a Sector Perform rating on VRX stock with an $18 price target, which implies a 2% downside from current levels. (To watch Miehm’s track record, click here)

For the first quarter, Miehm calls for $1.92 billion in revenue from the comeback giant under the Street’s $1.95 billion forecast. Additionally, the analyst estimates VRX can yield $736 million in adjusted EBITDA, ahead of the Street’s $727 million. Encouraged, Miehm explains, “We continue to believe that the company’s 2018 guidance may be conservative and would not be surprised to see upward revisions in the coming quarters (likely Q2).” Projecting for the year, the analyst maintains his EBITDA expectations at $3.24 billion.

Miehm sizes up the VRX team as having played it safe when it comes to its guide for the year. As such, the analyst anticipates it is only a matter of time before there is an upwards revision here. However, “In the event this does not occur, the shares could check back, but this move would likely be short-lived, as upward revisions in 2018 analyst estimates by August could ultimately help propel the shares higher, in our view,” notes the analyst.

Glancing ahead, “We believe focus over the next several quarters will remain on new product launches (Siliq and Vyzulta). Xifaxan life cycle management commentary could also be helpful. Investors may once again look for the company’s outlook on its capital structure (i.e. financing, additional divestitures). On that front, we view the near-term potential for equity financing as unlikely with any additional divestitures to be minor in nature,” surmises Miehm.

TipRanks indicates this beleaguered biotech giant still has some more turnaround left before Wall Street is ready to bat for the bulls. Out of 10 analysts polled in the last 3 months, 3 are bullish on VRX stock, 5 remain sidelined, while 2 are bearish on the stock. With a loss potential of 3%, the stock’s consensus target price stands at $17.69, marking apprehension baked into expectations.

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