Market Overview

Valeant Just Received 2 More Downgrades


Valeant Pharmaceuticals Intl Inc (NYSE: VRX) is down 73 percent year-to-date. It should come as little surprise, therefore, that the stock is seeing its share of downgrades for 2016.

Joining the party on Monday are Barclays and Mizuho Securities.

Barclays: Downgrade To Equal-Weight, $34 PT

In a note, Barclay analyst Douglas Tsao said the firm is "moving to the sidelines" on Valeant, citing "the greater uncertainties facing VRX over the next 12–18 months.

Particularly of note, Tsao highlighted the "troubled/controversial relationship" Valeant has with Walgreens and its drug Philidor. "There were unknowns around profitability of scrips through Walgreens and even though initial volume trends were encouraging, the magnitude of the cut to VRX's outlook for 2016 came as a surprise," according to Tsao.

Related Link: Specialty Pharma Worries Could Be Bigger Than Valeant

However, the analyst did mention that the impacts from Philidor are likely to be transient.

Furthermore, the analyst justified the price target cut by stating, "We continue to see value in VRX's key franchises (GI, B&L, and even select products in dermatology) but as a result of recent events we expect investors are going to take a cautious stance until visibility/transparency improves."

Mizuho: Downgrade To Underperform, $18 PT

Analysts at Mizuho substantially cut Valeant's price target, from a previous $70 to the new $18, stating, "After careful consideration of comments from the earnings call, we view 3-year growth forecasts as unreliable and see the business as contracting."

"We also expect erosion of the company's topline to exceed the exclusivity risk guided by Valeant due to heavier rebating and divestitures required for debt repayment," the analysts stated.

The analysts elaborated further upon the possibility that Valeant is contracting, "We don't trust Valeant's 2016 or 3-year growth forecasts and our 2016 estimates are lower (i.e., we model $10.4 billion in revenue and $8.04 EPS relative to guidance of $11.0–11.2 billion and $8.50–9.50). We also worry about liquidity and an ongoing insider trading class action suit that we believe could burden the liability side of the balance sheet.

"Our Underperform rating is predicated on an equally weighted combination of DCF analysis ($15) and a more conservative SOTP that employs lower sales multiples applied to updated 2015 numbers ($21) for a blended $18 PT," the analysts concluded.

Latest Ratings for VRX

Jun 2018DowngradesBuyHold
Jun 2018UpgradesEqual-WeightOverweight
May 2018UpgradesNeutralBuy

View More Analyst Ratings for VRX
View the Latest Analyst Ratings

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