Jefferies Cuts Valeant Target, But Still Sees $172 Upside

• Valeant Pharmaceuticals Intl Inc VRX shares have plummeted 63 percent in the last three months, and are trading significantly below their 52-week high of $263.81.
• Jefferies’ David Steinberg maintained a Buy rating on the company, while reducing the price target from $224 to $172.
• Following allegations of improper business conduct, the company has ended its relationship with Philidor, which could mitigate further damage on this issue, Steinberg mentioned.

While increasing controversy around its business conduct and distribution model, Valeant decided to sever ties with distribution partner Philidor.

Analyst David Steinberg believes that the company has made “the right move” in an attempt to restore investor confidence, with the shares have plunged 47 percent since October 16. The move may also potentially “mitigate further damage on this issue.”

Although this is a “positive first step,” Valeant’s shares could remain in the “penalty box” until there is increased clarity around the issue, Steinberg stated.

The EPS estimates for 2015, 2016 and 2017 have been reduced from $11.69 to $11.39, $16.14 to $14.78 and from $18.54 to $16.97, respectively, to reflect the termination of the relationship with Philidor, which equates to about 7 percent of Valeant’s revenues.

The analyst added, however, that several questions still remain, following the removal of Philidor from the equation. Moreover, the decision could “provide more fuel for regulators – who are already investigating the co on a number of fronts.”

Further clarity on these issues would be required for investor sentiment to improve, “although these “overhangs” could persist for some time,” Steinberg wrote.