Valeant's (VRX) Amended Facility Expected, But Shares Remain Uninvestible - Piper
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Piper Jaffray affirms Valeant Pharma (NYSE: VRX) with an Underweight rating and $22 price target following news that the company entered an amended credit facility.
Analyst David Amsellem commented today:
Valeant shares have been strong of late, ostensibly in anticipation of an amendment to the company’s credit facility (which was announced on Thursday) that gives the company more breathing room as it looks to stabilize and turn around key segments and sell off non-core assets as a means of accelerating debt pay down.
That said, the amendment in and of itself does not render VRX investable, in our view. The shares are trading at 8.4x EV/2016 EBITDA (based on the low end of VRX’s guidance range of $4.8B-$4.95B issued in June), bearing in mind that we continue to believe that VRX’s implied expectations for a significant 2H16 recovery is overly optimistic. Further, we do not see how potential divestitures recently cited by VRX would put the shares on a stable footing, nor do we see a path to stable EBITDA beyond this year.
On possible divestitures, Ansellem said:
Suppose that VRX was to execute on the sale of assets totaling $8B in transaction value at 11x aggregate EBITDA (or near $730M), per management commentary on its 2Q16 call. That would take EBITDA down to $4.07B (based on the low-end of the guidance range provided in June), and would take total debt down to $22.8B (assuming all proceeds are indeed used for net pay down). The translates into a pro forma (PF) debt/EBITDA of 5.6x (still quite high), and an PF EV/EBITDA of 7.9x, not exactly attractive particularly considering that there could easily be more pressure on the business (such as the potential pressures on U.S. Neuro/Other that we cite above). Put another way, given these dynamics, why would the shares be rewarded for the execution on the potential divestitures that management recently cited?
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