Piper Jaffray Raises PT On Valeant Pharmaceuticals After Posting Strong Quarter

Yesterday, Valeant Pharmaceuticals VRX reported 1Q11 cash EPS of $0.62, ahead of the Street estimate of $0.51. VRX not surprisingly raised its 2011 EPS guidance, reflecting the PharmaSwiss and Zovirax transactions. With the leanest cost structure in the pharma space and continued strong fundamentals for the brand generics and dermatology businesses in particular, Piper Jaffray believes diluted EPS nearing the high $3's in 2012 is realistic 2011 cash EPS guidance is now $2.65-$2.90, up from $2.45-$2.70, reflecting the impact of the PharmaSwiss purchase, the acquisition of full U.S. rights to Zovirax (as well as Canadian rights), and the in-licensing of topical eczema treatment Elidel. Piper continues to believe that a large scale transaction along the lines of Cephalon is not a must in order to see continued value creation for VRX. Despite limited sales growth, gross margins of 83% are higher than corporate gross margins of 73%. Further, retigabine/ezogabine should start contributing meaningfully to revenue next year. Piper Jaffray has a $65 PT and Overweight rating on VRX VRX closed Monday at $51.88