Valeant Could See Volatile Trading, But BofA Is Still Bullish

• Shares of Valeant Pharmaceuticals Intl Inc VRX were lower by more than 6 percent Thursday and now down nearly 30 percent over the past three months.
• Valeant announced on Wednesday it has responded to government inquiries into its drug pricing practices.
• Sumant Kulkami of Bank of America maintained a Buy rating and $290 price target, noting any weakness in the stock creates a "particularly good" buying opportunity.

Shares of Valeant have lost close to 30 percent over the past three months as part of the an overall Pharmaceutical sector re-rate and increasing calls from presidential hopefuls to take a closer look at pricing policies.

On Wednesday, Valeant responded to a letter from Senator Clair McCaskill (D-MO) relating to the company's Nitropress and Isuprel drugs.

"All of us at Valeant firmly believe in maintaining strong regulatory and financial controls and believe we have operated our business in a fully compliant manner," stated Michael Pearson, Chairman and CEO of Valeant. "We remain committed to assisting eligible patients who need our products, and we will be working with the appropriate groups to submit the requested documents and plan to cooperate with the inquiries."

Following Valeant's disclosure, Sumant Kulkami of Bank of America defended the company and reiterated a Buy rating with an unchanged $290 price target.

Kulkami pointed out that Valeant will report its third-quarter results on Monday and may issue further commentary surrounding the inquiries which also include subpoenas from Massachusetts and New York attorneys. The analyst added that while shares of Valeant could see some near-term pressure, he isn't making any changes to his valuation model at this time, but will "keep a close watch" on any new information.

Kulkami's base case valuation model assumes a valuation target $290 per share valuation. Under a "conservative scenario" in which he models no drug price increases, the valuation model still yields a $256 per share valuation. In another scenario, the analyst lowered his 2016 sales assumption for the "Other Neurology" segment by 50 percent, a $251 per share valuation is still derived.

Bottom line, any weakness in the stock represents a "particularly good" opportunity for investors.