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UPDATE: Morgan Stanley Upgrades Valeant Pharmaceuticals On Durability of Pricing Growth

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In a report published Wednesday, Morgan Stanley analyst Christopher Caponetti upgraded Valeant Pharmaceuticals (NYSE: VRX) to Overweight from Equal-weight, changing its price target from NA to $145.00.

According to the report, analysts believe investors underappreciate durability of pricing and earnings growth. Moreover, future M&A could drive upside.

“We believe VRX will be able to continue to raise U.S. list prices aggressively in coming years because its drugs are primarily in niche categories (derm, eye care, podiatry) that payers do not aggressively manage,” the report said. “In addition, the business mix has shifted to more durable assets. VRX now generates the majority of rev from EM branded generics, aesthetics, consumer, and devices (see Exhibit 2 on p. 3). Only 10% of pro forma 2013E rev is subject to patent cliffs and no more than 3% of rev is at risk to generics annually in '14-‘17E according to mgmt. We now foresee greater top-line durability, and we raised terminal growth from -2% to 0%.”

Some highlights from the report included:

-”We view Valeant as one of the best positioned specialty pharmaceutical companies to capitalize on industry consolidation.” -”Easier organic growth comps in 2H:14 and prospects for future M&A should drive more positive investor perception.” -”We are now more positive on terminal growth prospects given the diversity of Valeant's business and limited patent cliff risk.”

VRX closed Tuesday at $125.35 with shares trading up at 11.30 percent.

Posted-In: Christopher Caponetti Morgan StanleyAnalyst Color Upgrades Analyst Ratings


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