Valeant Pharmaceuticals (VRX) Reiterated Top Pick at Mizuho Securities; PT to $111
Mizuho Securities analyst Irina Koffler reiterated Valeant Pharmaceuticals (NYSE: VRX) as their Top Pick while maintaining an Outperform rating and lowering thier price target to $111.00 (from $155.00).
The analyst highlighted:
- The stock appears to have bottomed, in our view: We are by no means ignoring the risks tied to this stock. We worry about expansion of existing investigations, congressional probes of Philidor, and potential changes to senior management. All that said, we believe that the risk/reward in VRX is still favorable given business fundamentals. We are primarily taking down our numbers to eliminate amortization add-backs in the DCF as we have done for the other names under coverage but not wavering from our BUY thesis in VRX. Our new PT is $111/share from $155, previously.
- Model updates: We now estimate 2016 revenues of $11.8B and EPS of $13.54, below consensus estimates of $12.7B and $14.69. We model even lower U.S. sales (by $606M) due to overall business disruption, offset slightly by higher sales in emerging markets (by $67M). We also raised 2016 SG&A spending by $64M for possible investigations/restructuring though these expenses could get adjusted out. We expect stronger guidance in December. If we put a low 7-8x multiple on our 2016 EPS we would arrive at a valuation range of $95-108.
- Individual business units are still expected to deliver organic growth in 2016, even without deals: Valeant is comprised of multiple smaller business units like B+L, Obagi, and Salix which are relatively decentralized and many of these units remain strong performers. While we expect a negative impact to the company's dermatology revenues after the demise of Philidor, we are also seeing an uptick in Jublia weekly prescriptions in the retail channel suggesting the migration of these prescriptions to more normalized distribution. We would expect gross-to-net discounts on these units to come down later in 2016 after the company ceases giving away free product to generate improved gross margins. Salix prescriptions remain robust as well and management recently reported strong demand in its contact lens business. We have not added anything for Addyi, nor sales associated with the company's new IBS diagnostic test which represent upside.
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 $84.00 yesterday.