Valeant Pharma (VRX) Gains on Rare Upgrade at Deutsche Bank

Shares of Valeant Pharma (NYSE: VRX) are up over 4.5% Monday morning on an upgrade from Deutsche Bank to Buy (from Hold) and a price target of $20.

Analyst Gregg Gilbert sees "significant change" to VRX management over the last two years, crediting the management team with a recovery in the company's fundamentals. Gilbert credits the new VRX management team with positive execution on managing "near-term debt maturities, returning core franchises to growth and resolving some legacy legal issues."

Gilbert acknowledges previous years of caution and skepticism on the VRX story, but now "likes the set-up from here," suggesting significant upside over next 12 months, assuming management continues to execute, as the company reported "solid 4Q results and decent 2018 outlook." More importantly for clients, VRX management is demonstrating increased confidence in the long-term viability of the business, providing longer-term revenue and EBITDA targets, supported by "investing behind core growth franchises, reducing legal liabilities and strengthening the balance sheet."

The current valuation at $20 is based on the analyst's DCF valuation, assuming the shares can trade at roughly 7 times his 2018 EPS estimate.

The current price target represents 34.4% upside from Friday's close.

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