2016 guidance suggests that Valeant Pharmaceuticals downside risk outweighs the upside potential
Valeant Pharmaceuticals Intl Inc (NYSE:VRX) remains Underweight at Piper Jaffray Companies (NYSE:PJC) owing to little upside potential and downside risk being a lot more significant. Analyst David Amsellem analyzed the guidance for the year 2016, and has derived the conclusion that the chances for an upside remain remote at best. On the other hand, the downside risk is quite significant and has thus maintained an Underweight rating on the stock.
In order to derive the conclusion, the analyst studied the guidance which implied EBITDA of $5.6 – $5.8 billion in the light of his financial model. The analyst proportionated the numbers on different sectors of Valeant’s business to arrive at the speculated EBITDA range. The resultant growth in different sectors remained underwhelming; however, it may not be the final verdict as it involved a great number of dependencies and unquantifiable factors. Regardless, after studying the historical pricing of over 90 products in the US, and observing the prescription trends the analyst believes downside risk to be far greater than that of upside potential for 2016. The number of new prescriptions for skin diseases has declined incrementally in the past few weeks.
For the previous quarter, the company reported revenue of $2.8 billion above consensus of $2.75 billion and growth of 22.8% year over year was observed. The EPS was however below the expectations of $2.61 and came in at $2.50 with year over year decline of 3.1%.
Piper Jaffray remains conservative about VRX stock as the firm reiterated an Underweight rating and has declined to put a price target as the firm is yet to release audited financial reports. The analyst opinion for VRX has three strong Buy, four Buy, 10 Hold, three Underperform and one Sell rating. The stock is currently traded at $34.20 in the final hour of premarket.