Valeant Just Received 2 More Downgrades

Valeant Pharmaceuticals Intl Inc VRX has had a rough year thus far, down 73 percent year to date, almost 87 percent over the past twelve months and 68 percent in the past 30 days.

It should come as little surprise, therefore, that the stock is seeing its share of downgrades for 2016.

Adding to the downgrade column on Monday are Barclays and Mizuho Securities USA Inc.

Barclays: Downgrade To Equal-Weight, PT Of $34

In a recent research 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.

Related Link: Specialty Pharma Worries Could Be Bigger Than Valeant

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.

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, PT Of $18

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.

Valeant last traded at $26.98.

Posted In: Analyst ColorBiotechLong IdeasDowngradesPrice TargetMarketsAnalyst RatingsTrading IdeasGeneralBarclaysmizuhoPhilidorWalgreens
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