Mizuho Upgrades Valeant, Says Financial Engineering Helped Company 'Outfox The Shorts'

Valeant Pharmaceuticals Intl Inc VRX reported its 2Q results, with the revenue and EPS missing expectations.

Mizuho’s Irina R. Koffler upgraded the rating on the company from Underperform to Neutral, while raising the price target from $11 to $25.

2Q Results & Guidance

The company reported its 2Q revenue at $2.4 billion and Eps at $1.40, as compared to the consensus of $2.47 billion and $.147, respectively, and estimates for $2.51 billion and $1.54, respectively.

Management reiterated the FY16 guidance for revenue of $9.9-$10.1 billion and EPS of $6.60-$7.00.

However, Koffler believes that the guidance is unrealistic, given the 2.2 percent sequential revenue decline for Valeant Pharma’s top 30 products, along with a 3.4 percent quarter on quarter decline in U.S. revenue and meaningful pressure to lower SG&A spend.

“Outfoxing The Shorts”

“However, the stock soared because management announced plans to divest assets and indicated it would amend its debt covenants to avoid default triggers if EBITDA slips below the lower end of guidance,” the analyst mentioned.

Koffler believes that there is lower likelihood of the stock collapsing due to another guidance miss.

“Management discussed potentially divesting $2B of revenue in non-core assets for $8B, at 11x EBITDA multiples, which we view as highly aspirational,” the analyst stated.

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