Evercore ISI analyst believes Valeant’s recent divestiture signal good news for the troubled drug maker

Published By: Eunice Gettys on January 11, 2017 09:13 am EST

On January 10, Evercore ISI analyst Umer Raffat provided his two cents on Valeant Pharmaceuticals Intl Inc (NYSE:VRX) following the company’s recent press releases. The analyst stated that all three press releases provided good news for the drug maker. Consequently, VRX shares sky-rocketed roughly 6.84% during active trading Tuesday.

According to Reuters, Valeant Pharmaceuticals has announced that it signed definitive agreements to sell three skin care brands to L'Oréal and its Dendreon cancer vaccines business to China’s Sanpower. All transactions are expected to be worth $2.12 billion.

The move comes at a time when the troubled drug maker is seeking to reduce its more than $30 billion debt load. Moreover, through these divestitures, the company also aims at better aligning its product portfolio with its recent operating strategy along with strengthening the balance sheet.

Consequently, Mr. Raffat commented: “Valeant effectively got ~13x average EV:EBITDA across the sale of Dendreon (sold for ~$819M; ~8x) and Cerave (sold for $1.3B; ~20x).” He further expects the aforementioned transactions to be neutral on the company’s earnings per share (EPS) due to its interest savings.

Furthermore, Reuters report suggested that with debt reduction, Valeant is trying to regain its investors’ confidence given that the stock plunged roughly 85.72% during 2016. The company’s name was further strained as it became the subject of various investigations by regulatory authorities, owing to its secret relationship with pharmacy benefit managers.

Out of a total of 22 analysts covering VRX, four rated it as a Buy, 13 recommend a Hold, one tagged it as Overweight, one assigned an Underweight rating, and three suggested a Sell. The consensus price target stands at $32.91 with more than 100% upside potential over the last closing price.