Valeant's (VRX) Improved Credit Outlook Seen as 'Meaningful Positive' at BMO Capital

Gains in Valeant Pharmaceuticals (NYSE: VRX) Tuesday appeared to be a response to the credit rating upgrades by Moody’s and S&P, noted BMO Capital analyst Alex Arfaei. In his view, the news was a "meaningful positive development," and in-line with bank's expectations.

"As we recently argued in our comment published following Valeant’s 10K filing, Valeant has averted technical default on its debt, and even though our forecasts are below the company’s guidance, we do not anticipate Valeant breaching its debt covenants. Nonetheless, investor sentiment was still cautious following the 10-K release; however, that seems to be gradually improving following today’s news, which coincides with Joe Papa starting as CEO and Chairman," said Arfaei.

"We expect at least some level of short covering in VRX following today’s news, reflecting lower probability of debt default. We also believe that value investors are now more likely to get involved in VRX following the 10-K filing; however, there is still some uncertainty regarding the 2016 guidance," continued the analsyt.

Arfaei added "While our forecasts are at the top end of Valeant’s current 1Q16 guidance, we are below the FY 2016 guidance, and we would not be surprised if the new management lowers guidance. We suspect that is somewhat expected by the Street at this point, and as long as guidance is in-line with our forecasts (i.e. Revenue of $10.8Bn, EBITDA of $5.3Bn), we do not expect a major negative reaction. Investor’s focus will be on the long term outlook for the company."

BMO Capital has a Market Perform rating on Valeant Pharmaceuticals with a price target of $44.

For an analyst ratings summary and ratings history on Valeant Pharmaceuticals click here. For more ratings news on Valeant Pharmaceuticals click here.

Shares of Valeant Pharmaceuticals closed at $32.65 yesterday.

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