Morgan Stanley Makes Bullish Call on Valeant (VRX); Rating Raised to 'Overweight'
- Record-setting rally pushes on as S&P ends week up 3 percent
- Trump's Cohn Pick Most Bullish Sign Yet for Banks - Cowen
- Unusual 11 Mid-Day Movers: (IDXG) (INVN) (EBS) Higher; (SCON) (DTEA) (DLTH) Lower (more...)
- 21st Century Fox (FOXA) offers to acquire Sky for GBP10.75/share
- Coca Cola (KO) Announces James Quincey to Succeed Muhtar Kent as CEO; Kent to Continue as Chairman
Get daily under-the-radar research with StreetInsider.com's Stealth Growth Insider Get your 2-Wk Free Trial here.
(Updated - August 17, 2016 10:46 AM EDT)
Morgan Stanley upgraded Valeant Pharmaceuticals (NYSE: VRX) from Equalweight to Overweight with a price target of $42, implying 58% upside. The stock's bull case price target is $68 and its bear case is $11. Analyst David Risinger said his upgrade was primarily a multiple expansion call.
Risinger explained, "Although VRX still faces risks, we see the upside skew as attractive. Risk of severe financial stress should diminish as covenants are renegotiated and VRX pays down debt, and deleveraging should drive equity value accretion."
The analyst continued, "Following the company's 2Q earnings call, we see a clearer vision under new CEO Joe Papa to enhance financial prospects. We expect management to successfully renegotiate debt covenants for a small amount (est. $60M extra annual nterest expense), improve operating income & cash flow, and pay down debt. As the company delevers, this can drive significant equity value accretion."
Morgan Stanley new price target is is based upon a potential 10% increase in Valeant’s current trading enterprise value from $39 billion to nearly $44 billion, which would drive shares higher 58% from $27 to $42.
"Even if Valeant maintains the same Enterprise Value (EV), we anticipate that deleveraging can drive higher equity value accretion," the analyst said. "Simple math on stability: if we assume that Valeant's enterprise value were to remain constant, each $2B in organic (non-divestiture) free cash flow could effectively increase current equity value of $9.3B by >20%. We project 4-yr (2017-2020) FCF of $9B, net of estimated outflows of $2B for investigations/litigation, $1B for cap ex, and $1B for contingent consideration. Note our $9B FCF estimate is close to Valeant's current equity value."
Shares of Valeant Pharmaceuticals closed at $26.60 yesterday.
Serious News for Serious Traders! Try StreetInsider.com Premium Free!
You May Also Be Interested In
- MKM Partners Raises Price Target on Broadcom Ltd. (AVGO) to $207 Following 4Q Beat
- Argus Downgrades Sonoco Products (SON) to Hold
- Streetinsider.com's Hot Lunchtime Reads 12/8: (VRX) (BABA) (HTBX) (ARMK)
Create E-mail Alert Related CategoriesAnalyst Comments, Hot Comments, Hot Upgrades, Momentum Movers, Short Sales, Upgrades
Related EntitiesMorgan Stanley, Earnings
Sign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!