Valeant Isn't A Short-Term Fix

Things seem to keep getting worse and worse for Valeant Pharmaceuticals Intl Inc VRX and its shareholders, including last week’s deep guidance cut. Barclays analyst Douglas Tsao believes Valeant’s new management team is taking steps in the right direction, but the journey will be a long one for the battered company.

No Shortcuts

“While last week’s cut to expectation was not unanticipated given the change in leadership and the realities of script trends in recent months, the magnitude clearly showed a lot of work remains to be done,” Tsao explained.

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At the very least, Valeant seems to have eased concerns over near-term liquidity, but Tsao is still leery of the company’s large long-term debt load.

He noted Valeant could further address its debt issues by selling non-core assets, but this strategy would also cut back on the company’s free cash flow.

Barclays believes the fact that Valeant has had so many problems with its Walgreens Boots Alliance Inc WBA deal, including losing money on some prescriptions, is an indication that the deal is poorly-structured and will likely not solve the company’s distribution problems.

Not All Bad

It’s not all bad news for Valeant, however, as Bausch & Lomb is firing on all cylinders and should get boost from product launches throughout the remainder of the year.

Barclays lowered its 2016 EPS estimate for Valeant to $6.77 but maintains its Equal Weight rating and $34 price target for the stock.

Disclosure: The author holds no position in the stocks mentioned.