Harriet Lefton

About the Author Harriet Lefton

Harriet originates from the UK where she worked as a journalist specializing in the metal markets. She graduated from the University of Cambridge before becoming a qualified UK lawyer.

5 Reasons to Be Bullish on Valeant Pharmaceuticals Intl Inc (VRX) Stock

Seeking Alpha’s top-ranked blogger Chris Lau believes the market is underestimating the potential of Canadian pharmaceutical giant Valeant Pharmaceuticals Intl Inc (NYSE:VRX). Share prices rose last week following Valeant’s successful asset sale, but have since fallen back to pre-sale levels of close to $15.

Lau is ranked #61 out of 5,746 bloggers tracked by TipRanks’ financial accountability engine. The five-star rated blogger has a 54% success rate and 9.4% average return on his recommendations.

The market is wary that Trump will follow through on his talk of raising drug prices, says Lau, but he sees these concerns as short-lived and that ultimately VRX share prices will rise to closer to $26. Here’s why Lau is so bullish on VRX stock:

  1. $2.7 billion asset sales – Unlike the rest of the market, Lau is not downhearted by Valeant’s failure to find a buyer for gastrointestinal company Salix. Lau points out that Salix’s size- it’s the largest independent gastrointestinal company in the world- makes it difficult to find a suitable buyer. Divesting assets has already brought Valeant an impressive $2.7 billion, and Lau expects the company to make further 2018 debt payments once further assets are sold and cash flow is back in the green.
  1. Sales force turnover cut – CEO Joe Papa has cut the sales force turnover to 6% from 11%. And, as Lau notes, new sales leadership could be the spark needed to reignite Salix revenue growth.
  2. Bausch & Lomb – Lau is skeptical of market murmurs that Valeant should sell B+L. Instead he believes that Valeant should refocus efforts to expand B+L’s eye care unit. Valeant reported that B+L is growing sales at 7.1%- which is above both GlaxoSmithKline (NYSE:GSK) and Johnson & Johnson (NYSE:JNJ) figures.
  3. 2017 pipeline – Valeant has 50 launches planned for 2017, and interestingly many of these launches will be in areas like the Middle East rather than North America. CEO Papa is committed to grow its 48 R&D facilities by increasing R&D spending 38% y-o-y. Lau is the most excited about Valeant’s drug Brodalumab for the treatment of psoriasis which has a launch date of 2H17. Aside from Brodalumab, Valeant five other significant drug launches are planned for 2017.
  4. Pricing – Valeant’s connection to the now-defunct pharmacy Philidor and the drugs-price-raising scandal was a blow to how the market perceived Valeant according to Lau. However, the market should be reassured by Valeant’s promise to not introduce any double-digit U.S.-Branded Rx price increases. And crucially, Lau notes that 87% of B+L’s EBITDA is completely unrelated to the U.S. prescription pricing model.

Taking all this into account Lau calculates that Valeant shares are worth closer to $26. (Full article)

Out of the 12 analysts polled by TipRanks (in the past 3 months), 1 rates Valeant stock a Buy, 8 rate the stock a Hold and 3 recommend to Sell. With a return potential of 32%, the stock’s consensus target price stands at $20.18.

Disclaimer: The author has no positions in the stock mentioned. This article is intended for informational and entertainment use only, and should not be construed as professional investment advice.

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