Valeant's High Debt Load Puts Q4 Focus On EBITDA Guidance

Valeant Pharmaceuticals Intl Inc VRX is scheduled to report its fourth-quarter results Tuesday. “Given Valeant’s elevated leverage, lower growth, and higher risk profile, we believe that a discount to the specialty pharma peer group is warranted,” Canaccord Genuity’s Neil Maruoka said in a report, while maintaining a Hold rating and a price target of $19.

Q4 Preview

Maruoka mentioned Q4 was the lowest quarter for the company’s sales in 2016. He expects Valeant’s top line to come in at $2.3 billion and adjusted EBITDA at $1.1 billion, broadly in line with consensus estimates. Adjusted EPS is estimated at $1.16, versus Street expectations of $1.22.

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High Debt Load

Valeant’s debt load is high and investors are likely to focus on the company’s EBITDA guidance for 2017, the analyst stated. Taking into account the company’s recent asset divestitures, Valeant’s remaining total debt is estimated at $28.3 billion.

“Assuming all proceeds were used to pay down senior debt, we are looking for 2017 adjusted EBITDA guidance above $3.6 billion to make us comfortable with Valeant’s covenants,” Maruoka wrote.

Valeant had indicated that it has identified non-core assets worth ~$8 billion that it could potentially divest to reduce its debt load. “Although recently announced divestitures are positive, they nonetheless underscore the challenges of achieving accretive multiples without giving up growth-driving assets,” the analyst pointed out.