Valeant (VRX): Cantor Sings the Praises of Comeback in Motion

Cantor's Louise Chen shares a bullish take on VRX following its first quarter print and plans for a name change to Bausch Health Companies.


Can Valeant Pharmaceuticals Intl Inc (NYSE:VRX) investors breathe a sigh of relief today? Though the company delivered a first quarter loss against this time last year’s profit, shares are on a solid 9% upturn today. CEO Joe Papa has a new name in mind to shake off debt ghosts and baggage associated with Valeant’s challenged history: Bausch Health Companies, complete with new ticker BHC. Investors seem to like the idea of a comeback, where the name will be assumed from July.

Bausch Health Companies stems from the strength of the biotech giant’s optical products segment Bausch & Lomb; a segment that generated $1.10 billion for the company in its first quarter showcase of the year, responsible for over half of VRX’s total revenue. Moreover, the business realized a whopping $4.9 billion in revenue in 2017, the company’s best unit by revenue.

This certainly will not be the company’s first name-change rodeo. After all, it was only in 2010 that beleaguered pharma firm Biovail took over Valeant and assumed its name. Under Papa’s leadership, VRX’s debt load has already been lessened beyond 20% over the course of the last 2 years, and rebranding is the next step in the turnaround narrative. Thanks to the Bausch & Lomb business, VRX lifted its full-year revenue guide from a range of $8.10 to $8.30 billion up to $8.15 to $8.35 billion. Therefore, it makes sense this is the name Papa seeks for the rebranding- a name that signifies positive potential.

Cantor analyst Louise Chen chimes in calling this “a turnaround for the ages, starting with 1Q18 beat and raise.” Moreover, the analyst anticipates that better appreciation for the company’s growth opportunities as well as impressive execution point to other earnings raises on the horizon along with multiple expansion in 2019 and down the line.

In reaction, the analyst reiterates an Overweight rating on VRX stock with a $25 price target, which implies a close to 27% upside from current levels. (To watch Chen’s track record, click here)

For the first quarter, VRX posted $832 million in EBITDA, a whopping $101 million ahead of FactSet consensus and beating out the analyst’s forecast by $146 million. The VRX team jumped its EBITDA outlook for the year from a range of $3,050 to $3,200 million up to $3,150 to $3,300 million, trouncing FactSet consensus of $3,153 million.

The best aspects from Valeant’s first quarter that lead Chen to continue to bat for the bulls are as follows: “1) Delivered overall organic revenue growth for the first time since 2015, driven by Branded Rx and Bausch + Lomb/International Segments., 2) Raised 2018 full year revenue and adjusted EBITDA guidance ranges., 3) Company’s name will change to Bausch Health Companies Inc. in July 2018. This signals to us that Valeant is at an upwards inflection., 4) Repaid ~$280MM of debt with cash on hand in 1Q18., 5) Issued $1.5B aggregate principal amount of 9.250% senior notes due 2026, the net proceeds of which along with cash on hand were used to repurchase ~$1.45B aggregate principal amount of outstanding Senior Notes due 2020 and 2021., 6) Achieved dismissals or other positive litigation and investigation outcomes in ~20 matters since January 1., And 7) Cash and equivalents totaled $909MM at 03/31/18, and the company’s availability under the Revolving Credit Facility was ~$1.1B at 3/31/18.”

TipRanks reveals Valeant’s turnaround story is not quite over just yet, with most of Wall Street cautious on this biotech giant. Out of 11 analysts polled in the last 3 months, 3 are bullish on VRX stock, 6 remain sidelined, while 2 are bearish on the stock. With a loss potential of nearly 10%, the stock’s consensus target price stands low at $17.72.

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