by Crista Huff
(Note: This article was reserved for Goodfellow LLC subscribers until October 22, 2015, when I made it available to the general public.)
Valeant Pharmaceuticals International Inc. (VRX, $63.77) is a specialty drugmaker. Product categories include dermatology, neurology and opthalmology; featuring Solodyn oral anti-acne therapy, Wellbutrin, and Restylane dermal filler. Corporate growth is derived both from increasing product sales, and mergers & acquisitions.
In the years following recent mergers and acquisitions, Valeant more than doubled its 2011* revenue & operating income. 2011 revenue came in at $2.4 billion, and net income was $154 million. Significant net income growth is projected to follow in suit.
Standard & Poor’s Research (S&P) reports, “We project revenues of $4.5 billion in 2013, up from an indicated $3.5 billion in 2012, primarily reflecting the late 2012 acquisition of Medicis Pharmaceutical.”
Wall Street projects earnings per share (EPS) to grow 54%, 25%, and 15% in fiscal years 2012 through 2014. In a comment earlier this January, Morgan Stanley Research thinks that Valeant’s management is being conservative on earnings projections, and that Valeant will continue to beat EPS expectations in 2013. Morgan Stanley continues, “CEO Mike Pearson envisions transforming Valeant from a $4.6B revenue company in 2013E to a $10-$20B revenue company ‘in the foreseeable future.’ “
Earnings growth is coming from a higher-margin product mix, rapidly increasing sales, and cost synergies related to acquisitions, offset in part by merger-related financing costs.
The VRX 2013 price-earnings ratio (PE) is 11.3. The PE has ranged from 5 to 26 during the company’s last six profitable years.
Valeant’s long-term debt ratio is high, at 56%. The company’s CEO has expressed an interest in a “merger of equals” in order to build the company and reduce leverage.
S&P has a Qualitative Risk Assessment of “High” on VRX stock. “Our risk assessment primarily reflects risks associated with the challenges of integrating acquisitions, achieving planned synergies and growing the overall business. Along with other branded pharmaceutical companies, VRX also faces R&D risks associated with the development, regulatory approval and commercialization of pipeline products.”
- Valeant Pharmaceuticals
six-month chart 01-18-13
S&P has a 4-Star Buy rating on VRX stock, and a $70 12-month price target.
VRX is an aggressive growth stock, suitable for experienced, risk-oriented stock investors.
The stock spent the last two years bumping up against resistance in the mid-upper $50’s, then broke out on the upside this month. There is support around $60. I expect the VRX price to rise from here, possibly aggressively.
* Valeant operates on a December fiscal year.
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