A Pharmaceutical Stock for Aggressive Growth Investors

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 Pharmaceuticalssix-month chart 01-18-13
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.


Happy investing!

Crista Huff
Goodfellow LLC

* * * * *


Investment Disclaimer

Release of Liability: Through use of this website viewing or using you agree to hold www.GoodfellowLLC.com and its employees harmless and to completely release www.GoodfellowLLC.com and its employees from any and all liability due to any and all loss (monetary or otherwise), damage (monetary or otherwise), or injury (monetary or otherwise) that you may incur.

Goodfellow LLC and its employees are not paid by third parties to promote nor disparage any investment. Recommendations are based on hypothetical situations of what we would do, not advice on what you should do.

Neither Goodfellow LLC nor its employees are licensed investment advisors, tax advisors, nor attorneys. Consult with a licensed investment advisor and a tax advisor to determine the suitability of any investment.

The information provided herein is obtained from sources believed to be reliable but is not guaranteed as to accuracy or completeness. When information is provided herein from third parties — such as financial news outlets, financial websites, investment firms, or any other source of financial information – the reliability or completeness of such financial information cannot be guaranteed.

The information contained on this website is provided for informational purposes only and contains no investment advice or recommendations to buy or sell any specific securities. This is not an offer or solicitation for any particular trading strategy, or confirmation of any transaction. Statements made on the website are based on the authors’ opinions and based on information available at the time this page was published. The creators are not liable for any errors, omissions or misstatements. Any performance data quoted represents past performance and past performance is not a guarantee of future results. Investments always have a degree of risk, including the potential risk of the loss of the investor’s entire principal. There is no guarantee against any loss.


Leave a Reply

Your email address will not be published. Required fields are marked *