Shares of Valeant Pharmaceuticals climbed during regular trading hours on Thursday after analysts at JPMorgan downgraded them. It seems a repeat of what we saw earlier this month when analysts cut their price targets for the company but shares rallied anyway. This time around, JPMorgan said there are just too many uncertainties around its core business and named Allergan as its top pick in specialty pharmaceuticals.
Valeant Pharmaceuticals downgraded to Neutral
In a report dated June 22, analyst Chris Schott and team said they downgraded Valeant to Neutral because of “ongoing core product challenges and as we reprioritize our coverage.” They also slashed their price target from $50 to $35 per share. They noted that they have continued to support the drug maker throughout its string of long-running controversies based on valuation, and they still see an “attractive” case based on a sum of the parts.
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However, they’re starting to see too many uncertainties in Valeant’s core business trends that could take some time to be resolved. More specifically, they said Xifaxan, which is one of the drug maker’s key growth drivers, continues to underperform their expectations, and they don’t see any “clear path to re-acceleration for the product.” Further, they expect Valeant’s recovery to take a long time unless “significant divestures” or a full sale of the company occur.
They also highlighted generic drug pricing in the report, which has been a controversial area for Valeant Pharmaceuticals for quite some time. The company has been blasted recently for its steep price increases on generics and ordered to reduce prices on some heart drugs.
Shares of Valeant climbed by as much as 2.63% to $22.21 during regular trading hours on Thursday.
Allergan is JPMorgan’s favorite
Schott and team’s top pick in specialty pharmaceuticals is Allergan, which they rate at Overweight. They said it has a “top-tier branded pharma growth profile and significant balance sheet optionality.” They believe Allergan’s valuation and growth “compare favorably” to those of the company’s peers, and they believe the upcoming divesture of the generics business as a key catalyst or the company’s stock because they expect it to begin its $10 billion share repurchase program using the money. That represents about 12% of the total float.
Additionally, they expect Allergan to return its focus to mergers and acquisitions as it will have more than $20 billion in capacity and the potential to make “stepping stone” deals, which they believe will help improve investor confidence in the sustainability of the company’s long-term growth.
Shares of Allergan rose by as much as 1.78% to $232.62 during regular trading hours on Thursday.