Valeant Pharmaceuticals Q3 could prove it doesn’t need Allergan, says Paradigm

A strong third quarter from Valeant Pharmaceuticals (Valeant Pharmaceuticals Stock Quote, Chart, News: TSX:VRX) on October 20th could prove to the street that the company’s legacy business is strong and sustainable, says Paradigm Capital analyst Alan Ridgeway.

In a research update to clients this morning, Ridgeway maintained his “Buy” rating and $160.00 target on Valeant, implying a return of 39% at the time of publication.

Ridgeway notes that on September 24th, framed in a letter to acquisition target Allergan, Valeant CEO Michael Pearson said that his company’s third quarter numbers would be better than the guidance it had provided with its Q2 numbers. He said he expected same store growth would exceed 15%, and that the company would experience double-digit growth across “almost all” of its major businesses and geographies. The Valeant boss also said he also expects strong double-digit same-store organic growth in the fourth quarter.

Ridgeway says the September guidance exceeded his expectation of 5.6% growth for organic same-store sales and 8.7% excluding generic impacts. He now thinks Valeant will “materially beat” these numbers, and that there is a strong likelihood it will raise its Q4 guidance.

“In our opinion, a strong quarter with a raise in guidance for Q4 should alleviate some of the arguments that AGN and the bears have been making about the sustainability of VRX’s legacy business and its ability to maintain momentum in growth businesses it acquires,” says Ridgeway. The analyst says he views Valeant as a solid stand-alone investment opportunity, and that Allergan is simply a free option for investors.

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