Valeant Pharmaceuticals Slips After Price Target Cut By Mizuho

Valeant Pharmaceuticals Slips After Price Target Cut By Mizuho
Valeant Pharmaceuticals Chart via S&P Capital IQ

Valeant Pharmaceuticals has promised to release its next earnings report on March 15 after having delayed its release following a series of problems. Along with that earnings report, the drug maker could cut guidance, and as a result, analysts at Mizuho Securities have cut their estimates and their price target.

Valeant shares fell by as much as 3.38% to $63.44 in afternoon trading today.

Valeant Pharmaceuticals’ price target to $70

In a report dated March 8, analyst Irina Koffler said she slashed her price target for Valeant Pharmaceuticals from $112 to $70 per share but maintained her Neutral rating. She expects management to cut full-year sales guidance to about $11.7 billion, which she said implies full-year earnings of $12.19 per share.

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However, she still thinks the company can “grind out some modest top line growth while pursuing additional efficiencies,” although she adds that there could be minimal room for upside due to its debt load and “limited optionality.”

Valeant offers some “shiny objects”

The analyst actually likes Valeant’s product portfolio, saying it consists of a number of “shiny objects,” including the drugs Xifaxan and Jublia, the consumer business, and the contact lens business, plus several older brands that are still resilient. She thinks that next year, the company will probably be able to achieve organic growth in the single digits by combining pricing and volume after the deal with Salix annualizes, she said.

She added that Valeant’s prescriptions business appears to be relatively stable and that its presence at the American Academy of Dermatology was strong. Further, she didn’t hear anything about the risks of suicide from Brodalumab from the podium, which is also important.

She also remains comfortable that if it becomes necessary to sell the business, the durability of revenues should make it possible. She does worry though about “excessive rebating” and doesn’t think Walgreens, which Valeant recently struck a deal with to replace controversial specialty pharmacy Philidor, will “meaningfully revitalize” the drug maker’s top line. In the long time, she thinks sales will indeed fall though—unless of course the company continues its typical M&A strategy and keeps progressing the products in its drug pipeline.

Valeant Pharmaceuticals may cut costs

Koffler now expects management to start looking for areas to improve cost efficiencies internally, like trimming down some of Valeant’s research and development targets or dropping the Addyi promotion, which she thinks should stabilize earnings. CEO Mike Pearson is now back at the helm after a months-long medical leave due to pneumonia and complications from it, and she sees his return as a huge positive because she thinks he’s the right person for what will likely be a difficult job.

She thinks that the worst in terms of “scary disclosures” is probably now out in the open as the government has reviewed Valeant’s internal communications. Also she said it seems as if the internal financial review is almost complete as the Ad Hoc committee recently slapped a value of $58 million on the financial restatement.

She adds that the filing of the 10-K should provide more stabilization for Valeant Pharmaceuticals shares, but she doesn’t see room for long-term upside because of how high the company’s leverage is compared to its weak growth outlook.

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