Why This Analyst No Longer Makes a Bearish Call on Valeant Pharmaceuticals (VRX)

Mizuho's Irina Rivkind Koffler has gotten more upbeat on the VRX name, but her raised expectations watch for 6% in loss potential for the stock.


Mizuho analyst Irina Rivkind Koffler still has her hesitations about Valeant Pharmaceuticals Intl Inc (NYSE:VRX), a company that is clearly not “out of the woods” quite yet. That said, the analyst who once vouched for the bears on this beleaguered biotech giant “no longer see[s] a sell catalyst in the name post 4Q:17.” Moreover, Koffler now bets the VRX team can realizes its 2018 outlook.

More confident on the company, the analyst upgrades from an Underperform to a Neutral rating on VRX stock while boosting the price target from $10 to $15. However, holding onto fears long-term as to what is in store for the biotech player’s comeback to revenue gains, even the analyst’s lifted price target implies a close to 6% downside from current levels. (To watch Koffler’s track record, click here)

“Bigger picture we remain concerned about Valeant’s return to revenue growth, which we currently model in 2020,” explains Koffler.

On a positive note, the analyst writes, “After an extensive review of the model and 10-K filing, we view the 2018 guidance range as realistic and don’t expect quarterly performance or dermatology weakness to upend the stock. Additionally, Xifaxan growth has been impressive, which may provide a tailwind to shares along with last year’s B&L launches.”

Yet, Koffler angles for more downside than upside as she braces for “another down year in 2019 and a protracted turnaround process,” though she adds she believes the Street’s expectations “should arrive there within a couple of quarters.” More negatively, the analyst surveys growth goals as “aggressive,” with “too much emphasis on a challenging turnaround of dermatology.” The analyst projects total revenues here will grow by merely an around $163 million jump with sustained heat on the diversified segment along with forthcoming losses of exclusivity (LOEs) on Apriso and Uceris.

“Valeant’s dermatology pipeline is primarily focused on topical treatments in diseases like psoriasis where doctors are migrating to systemic therapies or on categories with reimbursement pressure like acne, and we think it is risky to rely on this business as a growth driver that can offset future LOEs for key products like Xifaxan,” Koffler surmises, not a bear anymore, but not close to a bull on the biotech comeback kid of the Street- not yet.

TipRanks indicates Wall Street is evenly split between a battle of bulls vs. bears on this beleaguered biotech giant. Out of 12 analysts polled in the last 3 months, 3 are bullish on Valeant stock, 6 remain sidelined, while 3 are bearish on the stock. Yet, consider that the 12-month average price target of $17.81 reflects healthy upside potential of nearly 13% from where the stock is currently trading; in other words, optimism circulates among analyst sentiment even amid apprehension.