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BMO Still Believes Valeant Is Undervalued


BMO Capital Markets’ Alex Arfaei maintained a Market Perform rating for Valeant Pharmaceuticals Intl Inc (NYSE: VRX), while reducing the price target from $133 to $66, after the company reported its 4Q earnings and announced 2016 guidance.

Around the same time last year, management had indicated that 2016 EBITDA would be at least $7.5Bn, was emphasizing that, after the acquisition of Salix Pharmaceuticals, Ltd. (NASDAQ: SLXP). Valeant has now reduced its guidance to $5.6-$5.8Bn EBITDA, and the stock has declined by around 80 percent lower.

Investor Confidence Damaged

“The magnitude of this change reflects how vulnerable Valeant’s business was to push-back from payers and customers in response to its aggressive specialty pharmacy distribution and pricing decisions,” analyst Alex Arfaei wrote. He mentioned that investor confidence in the company’s growth prospects had been severely damaged as a result of this as well as management’s inconsistent communication.

The EPS estimates for 2016 and 2017 have been reduced from $13.33 to $9.07 and from $15.23 to $10.28, respectively.

“We still believe that VRX is undervalued relative to what we believe is the underlying business,” Arfaei commented. He mentioned, however, that Valeant would need to file the 10-K in April, complete the Ad-hoc committee investigation, execute on guidance, and divest some assets at reasonable prices to pay down debt in order to build more confidence.

Latest Ratings for VRX

Jun 2018TD SecuritiesDowngradesBuyHold
Jun 2018BarclaysUpgradesEqual-WeightOverweight
May 2018MizuhoUpgradesNeutralBuy

View More Analyst Ratings for VRX
View the Latest Analyst Ratings


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Posted-In: Alex Arfaei BMO Capital MarketsAnalyst Color Price Target Reiteration Analyst Ratings

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