VPH stock has an upside of 344%, Echelon says

With a new CFO and cost-cutting measures now in place, Echelon analyst Stefan Queneeville thinks there is tremendous upside in Valeo Pharma (Valeo Pharma Stock Quote, Chart, News, Analysts, Financials TSX:VPH).

On November 20, Valeo announced that it had taken action to reduce operating expenses by more than two-million dollars. The company concurrently announced that Pascal Tougas has been appointed as its new CFO.

“Valeo has made significant investments over the last years to build an innovative product portfolio and a commercial infrastructure that has positioned the Company for industry leading growth”, CEO Steve Saviuk said. “First and foremost, Valeo has and always will have, a strong commercial focus and commitment to bring the best innovative healthcare solutions to Canadians. Realigning our organizational structure will provide cost savings while allowing for better and more timely, actionable, decision making to ensure we maximize our commercial activities and attain sustainable profitability”.

Quenneville says he views the development favourably.

“While we were somewhat surprised by the departure of long-time CFO, Luc Mainville, to pursue other ventures, his replacement, Pascal Tougas, has strong Pharma experience having held several senior financial and operational roles for Sanofi (SANEPA, NR) Canada,” the analyst said. “The cost cutting initiatives are clearly in response to the expected loss of Xiidra as part of Novartis’ deal to sell the global rights for the drug to Bausch+Lomb, with Valeo’s Canadian rights to the product expected be returned for a cash payment. Overall, we view today’s news positively as it demonstrates the company’s focus on driving its operating leverage and achieving profitability.”

In a research update to clients November 20, Quenneville maintained his “Speculative Buy” rating and price target of $0.80 on VPH, implying a return of 344 per cent at the time of publication.

The analyst thinks Valeo will post an EBITDA loss of $7.3-million on revenue of $57.3-million in fiscal 2023. He expects those numbers will improve to EBITDA of positive $6.1-million on a topline of $78.0-million the following year.

“While we are making some adjustments to our estimates given the relatively minor cost cutting initiatives, these do not materially impact our $0.80/shr price target, which is derived using a 2.2x F2024 EV/Sales multiple,” Quenneville concluded. “This is a premium to the average of Valeo’s Canadian specialty pharma peers, but a discount to larger, better-capitalized US peers and is justified by VPH’s high expected sales growth, clear line of sight to Adj. EBITDA positive operations, and access to attractive new products stemming from its strong sales force in key therapeutic areas.”