Valeant (VRX) Default 'Unlikely', Says Rodman & Renshaw
Rodman & Renshaw reiterated a Buy rating on Valeant Pharmaceuticals (NYSE: VRX) with a modified price target of $118.00 (from $150.00). The change follows soft guidance issued yesterday. Analyst Raghurum Selvaraju noted that the stock's plunge was motivated by fear of default, which he sees as unlikely.
Selvaraju explained, "From our perspective, the main hurdle at this juncture for Valeant is the lack of credibility that management faces. We believe that the firm's businesses remain, at their core, valuable assets and that the company can continue to: a) deliver sufficient cash flow generation to meet its debt obligations; b) achieve top-line growth again through organic sales volume increases; and c) manage its relationships with reimbursement agencies successfully in a shifting drug pricing environment. However, the significant reduction in guidance and management's inability to provide granularity on inventory destocking vs. prescription trends for several key products have clearly hurt investor confidence in the company. In addition, Valeant needs to provide a clear timeline for the filing of audited financials for 2015, so as to avoid triggering a debt default."
"We anticipate that the firm should be in a position to file its 10-K by April of this year, and that its creditors would not invoke the cross-default clauses in Valeant's debt agreements. The downside action in the stock today was, in our view, principally motivated by fear of default, which we regard as unlikely. The firm continues to generate cash and has committed to paying down its debt as a top priority," added the analsyt.
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Shares of Valeant Pharmaceuticals closed at $33.51 yesterday.