3 Reasons For Valeant's New $42 Price Target: Morgan Stanley

Valeant Pharmaceuticals Intl Inc VRX reported its Q3 results, with the revenue 1 percent below consensus and the EPS missing the consensus forecast by 11 percent.

Morgan Stanley’s David Risinger maintains an Overweight rating on the company, with a price target of $42.

3 Concerns

The price target is based on a number of ongoing concerns, including the uncertain future growth prospects of the company’s base business, “in the face of managed care pressures and business controversies.”

Risinger also expressed concern regarding operation disruption at Valeant due to management and employee turnover.

The third concern mentioned by the analyst was “other gov't and legal investigations.”

Q3 Results

Valeant Pharma reported its Q3 revenue at $2.48 billion, with Xifaxan revenue of $273 million, which was ahead of the estimate.

Revenue declined 11 percent year-over-year, driven by a sales decline in the existing businesses, FX headwinds and discontinuations and divestitures.

The EBITDA came in at $1.16 billion, short of the consensus and the estimate, while the EPS of $1.55 also significantly missed expectations.

Guidance Cut

However, Risinger stated that the bigger surprised was the full-year guidance cut, “which implies a sequential decline in 4Q revenue and EBITDA.”

Valeant Pharma cut its revenue guidance for 2016 from $9.9 billion–$10.1 billion to $9.6 billion–$9.7 billion, below the consensus and the estimate.

The EBITDA guidance for 2016 was lowered from $4.8 billion–$4.95 billion to $4.25 billion–$4.35 billion, again meaningfully below expectations.

Valeant Pharma’s shares have declined 27 percent through October, driven by several concerns, including reports of criminal charges being potentially filed against the company’s former executives.

At last check, Valeant was down 21.59 percent on the day, trading at $15.