Tsao: Valeant Has $76 Upside But $12 Downside

Valeant Pharmaceuticals Intl Inc VRX shares are having a good Monday after the company announced it's searching for a new CEO and that hedge fund activist Bill Ackman will join the board.

Earlier in the morning, Barclays analyst Douglas Tsao downgraded the stock with a $34 price target. Tsao's reasoning was primarily based on uncertainty surrounding shares over the next 12 to 18 months.

Most interestingly, Tsao painted a picture of the "binary nature" of Valeant going forward; investors could either be rewarded handsomely or punished further. Catalysts like a clean 10K could push shares above $50 rather quickly, while any issues with creditors could force the stock to flirt with single digits.

More specifically, Tsao valued Valeant at $76 in an ideal upside scenario. "Upside would come from VRX addressing concerns around its financial position, including managing its debt and meeting financial reporting requirements," he wrote. "Additionally, evidence that VRX can improve relations with managed care to secure reimbursement for key products."

A downside scenario of $12, on the other hand, could happen " if the company cannot meet its financial reporting requirements which would impact its credit." The company must "secure reimbursement for key products to generate the cash flows needed to meet financial obligations," he added.

Catalyst List

The analyst also provided a list of near-term, medium-term and long-term catalysts investors should be tracking. They include:

• Consent from creditors to an extended deadline on Valeant's 10K and 10Q filings.
• A restatement of 10K results.
• Completion of the Board's Ad Hoc committee that shows investors Philidor was isolated.
• Improving Salix revenues in Q2.
• Restored cash flow numbers later in the year.
• Valeant's ability to hit earnings and cash flow guidance over the full year.
• The potential approval of brodalumab.