The addition of a respected board member is a positive, but Valeant Pharmaceuticals (TSX,NYSE:VRX) still faces a number of challenges, says Canaccord Genuity analyst Neil Maruoka.
Yesterday, Valeant announced that John Paulson, president of New York-based investment firm Paulson & Company, would join its board as the 11th member.
“The strategic plan to transform Valeant smartly focuses on rebuilding the company’s core franchises in ophthalmology, dermatology and gastroenterology while simultaneously using the proceeds from the sale of non-core assets and operating cash flow to delever the company,” Paulson said in a press release. “I am fully supportive of the strategy and leadership team at Valeant.”
Maruoka says this is a good choice, but it doesn’t take away from the fact that the company has its work cut out for it.
“Mr. Paulson is the President of Paulson & Co., and we view his addition as positive validation for the company’s turnaround strategy under CEO Joseph Papa,” says the analyst. “Despite this vote of confidence from a respected investor, we continue to believe there are several near-term challenges facing Valeant, including an overlevered balance sheet and the struggle to divest non-core assets at multiples accretive to leverage. An example is the recent $930 million divestiture of iNova at a ~7.5x EBITDA multiple, which we believe was nonetheless neutral to Valeant’s leverage.”
In a research update to clients yesterday, Maruoka maintained his “Hold” rating and one-year price target of (U.S.) $14.00 on Valeant Pharma, implying a return of 4.1 per cent at the time of publication.
Maruoka thinks Valeant will post EBITDA of (U.S.) $3.55-billin on revenue of $8.76-billion in fiscal 2017. He thinks those numbers will improve to EBITDA of $3.84-billion on a topline of $9.11-billion the following year.