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Valeant may see good news from Teva blowup

August 8, 2017

Last week, Valeant Pharmaceuticals International (VRX) tumbled 10% but for once it had nothing to do with anything Valeant did. Instead, it fell after Teva Pharmaceutical Industries(TEVAannounced god-awful earnings and guidance due to pressure in its generics business, pressures that were then extrapolated to just about every specialty-pharmaceutical company, including Valeant.

Valeant is scheduled to report earnings tomorrow, and last week’s plunge creates an interesting setup going into the print: Was last week’s pain enough to tamp down the reaction to bad news? Mizuho’s Irina Koffler notes that a decent quarter“could have an unexpectedly positive effect on the stock after the blow up in TEVA,” but maintains her Underperform rating and $8 price target on Valeant. She explains why:

Though we lowered 2017 revenue numbers, we view our sales estimates as relatively generous and do not rule out the possibility of a top-line miss vs. consensus. On the bottom line, we cut spending below guidance ranges and note that consensus estimates are at/below the low end of guidance ranges as well. During the quarter mgmt. issued information on revenue and EBITDA losses related to three divestitures (iNova, Dendreon, and Obagi), which implies that mgmt. is contemplating lowering guidance. However, the iNova and Obagi transactions haven’t closed yet and we therefore worry that the company could hold the line until later in the year, which would be a negative to our Underperform thesis in the short-term. The stock has rallied on debt
repayment news but not much has changed in the underlying business, so we think a correction is likely. On the other hand, a “not that bad” quarter could have an unexpectedly positive effect on the stock after the blow up in TEVA last week.

Shares of Valeant Pharmaceuticals International have fallen 0.8% to $15.01 at 9:58 a.m. today, while Teva Pharmaceutical Industries has dropped 3.8% to $19.83 after getting cut to Underweight from Equal Weight at Morgan Stanley.

http://bit.ly/2veEQ85

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