Valeant Pharmaceuticals Intl Inc (NYSE:VRX) will report fourth-quarter earnings results before Tuesday’s opening bell. Wall Street expects the embattled Canadian drug company to deliver a year-over-year declines in both earnings per share and revenue. But VRX stock suggests otherwise.;
Valeant stock, which is finally turning around after an incredible run into the ground, closed Friday at $16.18. The shares are up 12% year-to-date, and 16% over the past month.
Investors have grown more optimistic about Valeant’s ability to service its $30 billion debt load from potential asset sales to grow much-needed cash. Keeping the company solvent has been the main objective of CEO Joe Papa, who will be pressed Tuesday for concrete details of how he plans to do exactly that.
Valeant Q4 Earnings Expectations
For the three months that ended December, VRX is expected to report adjusted earnings of $1.21 per share on $2.34 billion in revenue, according to Thomson Reuters. This compares to the year-ago quarter when the company earned $2.50 per share on $2.79 billion in revenue.
For the full year, earnings are projected to decline to $5.44 per share, down from $10.16 a year ago, while revenue of $9.61 billion would decline 8.5% year over year.
Beyond the headline numbers, analysts will look for any sign that VRX stock has seen the worst of its struggles. In its third-quarter results, reported in November, Valeant logged its fourth straight earnings miss and issued weak guidance. However, the whisper number for Q4 is $1.27 per share — 6 cents above the consensus.
I believe VRX stock, which is prone to massive moves, can gap higher if Valeant comes close to that whisper target. On the flipside, the stock could lose all of its recently gotten gains and then some if Valeant’s numbers disappoint.
Last Friday, Wells Fargo analyst David Maris reiterated an “Underperform” rating on Valeant stock, with a target range of $10 to $13. On the high end, that represents a potential decline of 20%. Said Maris:
“We believe Valeant shares are overvalued at current levels and believe that despite Valeant wanting to talk about ‘new Valeant,’ its business trends and pricing-driven model remain ‘old Valeant.'”
In other words, Papa must convince analysts that Valeant can emerge in 2017 far better than its 2016 campaign. And while the company is approaching a period of easier year-over-year comparisons, selling off assets to grow cash — while it will help reduce debt — will also hurt the top line.
Bottom Line for VRX Stock
It’s possible that Valeant, which has suffered significant business disruption over the past year, is in better shape today than it were a year ago. That, however, can be said about many companies which doesn’t have the accounting scandals and litigation risk still tied to VRX.
Nor does the term “better than last year” justify as a legitimate bull case.
Too many things must go right for VRX stock to emerge strong in 2017. Unfortunately, few of them are in the company’s control.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
