Valeant Gets First Downgrade In Over 3 Months

The road to a recovery for Valeant Pharmaceuticals Intl Inc (NYSE: VRX) seems long, while in the near term there are a number of uncertainties around the company’s business and cash flow trends, JPMorgan’s Chris Schott said in a report. He downgraded the rating for the company from Overweight to Neutral, while reducing the price target from $50 to $35.

Schott mentioned that Valeant faces some near-term headwinds like Xifaxan and Walgreens prior authorizations. Therefore, earnings are likely to be heavily weighted towards 2H16. Despite this, guidance implies a recovery in the business, while there are several uncertainties related to this as well as a further deterioration of business fundamentals cannot be ruled out.

Related Link: Valeant Isn't A Short-Term Fix

“Most notably, Xifaxan, which represents a key growth driver for the company, has recently underperformed relative to previous expectations, raising questions around the long-term growth prospects for the drug,” Schott wrote.

In the absence of significant divestitures, such as Salix or B&L, or a sale of the company, the road to recovery appears to be a long one.

“From here, we would like to see the company stabilize business trends in key franchises (e.g., an inflection in Xifaxan trends, a recovery in the dermatology franchise) and meet performance targets over the next several quarters,” the analyst stated.