BMO Starts Valeant At Market Perform On Debt Burden, Execution Uncertainty

While there is considerable value in some of the key franchises of Valeant Pharmaceuticals Intl Inc VRX and its shares have been under pressure, a number of headwinds still lie ahead for the company, BMO Capital Markets’ Gary Nachman said in a report. He assumed coverage of the company with a Market Perform rating and a $26 price target.

Citing debt burden and execution uncertainty as the “big clouds,” analyst Gary Nachman enumerated the reasons for remaining on the sidelines as:

1. Valeant being in a major transition with a number of moving parts. At least a couple of quarters of execution would be needed to get comfortable with the underlying fundamentals
2. Valeant has a huge debt burden of $31bn, and there’s lack of clarity into the cash flow and how the company would service that debt
3. Although Valeant has some core franchises that represent meaningful value and the new CEO aims at better optimizing them, “several hurdles remain though including increasing pressure from payers and fixing some of the issues with Walgreens.”
4. Valeant’s reputation has suffered damage and could take several years to recover.

Nachman further commented, “The debt remains a substantial overhang” and “…despite what some may argue is an attractive valuation there are other stocks in our coverage with depressed valuations that we believe offer better risk/reward profiles at this time.”