Nomura Securities Downgrades Valeant Pharmaceuticals (VRX) to Neutral
Nomura Securities downgraded Valeant Pharmaceuticals (NYSE: VRX) from Buy to Neutral with a price target of $60.00 (from $175.00), saying they have lost conviction in the company and management credibility needs rebuilding.
Analyst Shibani Malhotra commented, "We are downgrading Valeant shares to Neutral from Buy and reducing our DCF-based target price to $60 from $175 following a far more significant reduction in 2016 guidance than we had anticipated. We admit upfront, we have been humbled by our stock call on VRX, which we have defended despite the continuing spate of bad news, as we believed that despite the noise surrounding the company, much of the fundamental businesses had been performing well. Despite the fact that our new PT for $60 represents 79.1% potential upside, we do not expect VRX shares to outperform the market near term, as we have lost confidence in management’s ability to understand its own business and to provide reliable guidance. We no longer have the required conviction to rate VRX a Buy and are thus moving to the sidelines. A few key reasons:
- Management has lost almost all credibility with us and investors, as reflected in the 51.5% reduction in the stock price today (versus -0.2% for the S&P 500).
- The company clearly does not have a handle on its business performance given the steep reduction in guidance over merely three months. This disappointing guidance today has forced us to revisit our view on certain key businesses that are becoming more difficult to analyze given increasingly challenging healthcare and payer dynamics.
- There is a lack of visibility into potentially binary events such as the filing of the company’s 10-K and the conclusions from final Ad Hoc committee review results.
She added, "We recognize that while VRX no longer seems to trades on fundamentals, there are sources of potential upside such as approvals for new products, including Oral Relistor, Latanoprostene-Bunod and Brodlaumab. Additionally, a clear review from the Ad Hoc committee or a quick-enough filing of the company's 10-K to avoid technical default could provide investor confidence and help take the stock higher. We also note that management points to guidance being conservative and hopes future execution will rebuild investor credibility; however, this could take time. Net, given our lack of confidence in management as well as the lack of visibility into largely binary key events, we believe Valeant shares offer both upside and downside risk."
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Shares of Valeant Pharmaceuticals closed at $33.51 yesterday.