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4 Key Takeaways From Valeant Pharmaceuticals' 4th Quarter


  • Valeant Pharmaceuticals fell 20 percent last week after markets misinterpreted its fourth-quarter results.
  • Stock is now 28 percent below my $19 price target.
  • Four considerations: Lower EBITDA in 2018, higher short-interest, near-term headwinds and fair value.

Shares of Valeant Pharmaceuticals (VRX) closed at a price close to 30 percent below my $19 fair value assessment. On the surface, fourth-quarter revenue fell 10 percent while Bausch + Lomb sales fell. Though management forecasts revenue of over $11 billion solely on one product like VYZULTA, it still guided 2018 revenue by below that. The seasonal slowdown in the current first quarter also spooked investors. Now that the stock is at a 20 percent discount on the week and down 28 percent in 2018, what is the next move on VRX stock? Investors ultimately must consider four takeaways following Valeant's quarterly earnings before deciding what to do.

1) Lower EBITDA Expected

You may find Seeking Alpha’s Q4 earnings summary and 2018 guidance here. Every key reporting metric, from revenue to EBITDA to earnings, are all down. Investors headed for the exit when management said it would continue to make debt reduction a priority over returning free cash flow to shareholders. Further, the company lowered its $500 million free cash flow expectations down to the low-$400 million per quarter. This is due to higher capital expenditure requirements and other cash costs and investments it will make for the short-term.

While this is a disappointment for speculators hoping for a quick turnaround, the short-term investments are needed to support Valeant’s long-term plans. It will use every jump in free cash flow during any quarter to pay down its debt. Since the end of Q1/2016, Valeant cut its debt by over $6.7 billion. It still has $25.5 billion in debt. While its next maturities are not until 2020, the company wants to continue lowering debt to more manageable levels.

The U.S. Fed’s forecast for raising interest rates at least four times this year, up from three, suggests that Valeant has a higher urgency to having

ChartVRX data by YCharts

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This article was written by

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Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in VRX,AGN over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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