How Valeant Finally Won Over A Longtime Bear

Valeant Pharmaceuticals Intl Inc VRX fell 20 percent after reporting in-line earnings results.

But the very news that catalyzed a selloff was well-received by one longtime Valeant bear who transformed into a bull Monday.

The Rating

Deutsche Bank analyst Gregg Gilbert upgraded Valeant from Hold to Buy and maintained a $20 price target.

The Thesis

The analyst expressed confidence in the new Valeant leadership team and its strong performance over the last two years.

Valeant returned the core Bausch and Lomb, international and Salix franchises to growth by improving resource allocation and investment, Gilbert said in a Monday note. The strategy drove mid-single-digit growth in 2017, and Deutsche expects five-year expansion from 74 percent of total revenue to 84 percent.

At the same time, the Valeant team reduced debt by $6.7 billion, positioned itself to address the remaining $25 billion maturing in 2020 and resolved enduring legal issues, the analyst said. 

These accomplishments compound improvement in Xifaxan's prospects and justify Valeant's fresh self-assuredness, which was reflected in the release of longer-term revenue guidance, Gilbert said. 

“While challenges remain, most notably the heavy debt load, we believe VRX is doing the right things to strengthen the business, including investing behind core growth franchises, reducing legal liabilities and strengthening the balance sheet,” the analyst said. 

The Deutsche Bank analyst warned that he ex[ects high volatility in the stock, with trading disconnected from fundamentals.

Price Action

Valeant shares were up 4.33 percent at $15.52 at the time of publication Monday morning. 

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