Valeant Pharmaceuticals Intl Inc (VRX) Shares Fell Off a Cliff on Disappointing Outlook; Canaccord Weighs in

Valeant Pharmaceuticals Intl Inc (NYSE:VRX) shares tumbled nearly 11% in Wednesday’s trading session, as Wall Street came down hard on the drug maker. Why? Valeant introduced 2018 financial guidance that was below the Street’s estimates. Specifically, the company forecast 2018 revenue of $8.10 billion to $8.30 billion, compared to Street consensus of $8.4 billion. Adjusted EBITDA was guided to be in the range of $3.05 billion to $3.20 billion, compared to Street forecasts of $3.33 billion.

Canaccord analyst Neil Maruoka commented, “We expect consensus estimates to be revised lower, potentially further pressuring the stock, which we believe has been performing well lately due to technical and quantitative buying […] Based on the mid-point of the company’s EBITDA guidance for next year, we estimate that Valeant’s leverage ratio currently sits at a lofty 7.9x, reflecting the challenges of de-levering through divestitures. While the company has exceeded its goal by repaying $6.7 billion in debt since Q1 2016, much of that was repaid from the proceeds from asset sales. Unless asset valuations are higher than Valeant’s leverage ratio, we think the company gives up too much future EBITDA to efficiently de-lever.”

In addition, Valeant highlighted that it had recently filed a shelf prospectus, raising the prospect of an equity raise to reduce leverage.

“While management noted that this does not necessarily foreshadow a future equity financing, we believe an equity raise is a strong possibility given the challenges of debt reduction through divestitures and the slow de-levering from operating cash flow and future EBITDA growth,” Maruoka said.

As such, Maruoka reiterates a Hold rating on VRX stock, with a price target of $18.00.

Most of Wall Street echoes a neutral point of view, with TipRanks analytics exhibiting VRX as a Hold. Based on 9 analysts polled in the last 3 months, 2 rate VRX a Buy, 3 maintain a Hold, while 4 issue a Sell on the stock. The 12-month average price target stands at $20, marking a nearly 21% upside from where the stock is currently trading.


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