How Analysts View Valeant After an Earnings Catastrophe

Valeant Pharmaceuticals International Inc. (NYSE: VRX) reported its preliminary fourth-quarter financial results before the markets opened on Tuesday. These preliminary results may have been ill-advised to release, as the impact was absolutely catastrophic to the stock. Analysts did not take kindly to the results either.

The company reported its preliminary results as $2.50 in earnings per share (EPS) on $2.8 billion in revenue. That compared to consensus estimates from Thomson Reuters of $2.61 in EPS on revenue of $2.75 billion. The same period from the previous year had EPS of $2.58 and $2.28 billion in revenue.

In terms of guidance for the first quarter, the company expects EPS in a range of $1.30 to $1.55 and revenue to total between $2.3 billion and $2.4 billion. The previous guidance given by Valeant predicted that EPS would fall between $2.35 and $2.55 and revenue would be in the range of $2.8 billion to $3.1 billion. The consensus estimates for the first quarter call for $2.63 in EPS on $2.82 billion in revenue.

CEO J. Michael Pearson commented:

In discussion with the Board, we have assumed lower growth in our U.S. dermatology, gastrointestinal, and woman’s health portfolios, as well as certain geographies like Western Europe, while keeping our expenses largely unchanged.  We plan to work hard to improve these metrics by delivering higher revenues and reducing our costs and, if successful, we hope to beat this guidance in the quarters to come. In the meantime, we are comfortable with our current liquidity position and cash flow generation for the rest of the year, and remain well positioned to meet our obligations.

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After the earnings report, a few analysts weighed in on Valeant:

• Mizuho reiterated a Hold rating.
• Citigroup reiterated a Buy rating.
• S&P Equity Research reiterated a Buy rating but lowered its price target to $30 from $90.
• TD Securities reiterated a Hold rating and lowered its price target to $45 from $110.
• Scotiabank downgraded to Sector Perform from Outperform.
• Nomura downgraded it to Neutral from Buy and lowered its price target to $60 from $175.
• Morgan Stanley has an Equal Weight rating and lowered its price target to $39 from $98.
• Canaccord Genuity reiterated a Hold rating with a $75 price target.
• CIBC downgraded it to Underperform from Sector Perform and lowered its target to $24 from $90.
• JPMorgan reiterated a Buy rating.
• Piper Jaffray downgraded to an Underweight rating from Neutral.
• Wells Fargo reiterated an Underperform rating.

Shares of Valeant ended last week at $26.98, with a consensus analyst price target of $85.21 and a 52-week trading range of $26.72 to $263.81.