Analysts Remain Wary Ahead of Valeant Earnings

With beleaguered drugmaker Valeant (VRX)  set to report its third quarter financial results on Tuesday, investors ought to remain cautious even after the company last week confirmed that it is exploring the sale of its several-billion-dollar Salix gastroenterology business to help address its debt issues. 

Shares of the Canadian pharmaceutical company added about 1% to $19.38 during Monday morning's trading session. 

Valeant, scheduled to post its quarterly results pre-market on Tuesday, is anticipated to report earnings per share of $1.75 a piece, as opposed to $2.74 the same period a year ago, according to the average analyst estimate compiled by FactSet.

The consensus estimate for revenue is about $2.51 billion, as opposed to about $2.79 billion a year earlier, according to FactSet.

Even if Valeant successfully scores $10 billion via the sale of Salix to Japan's Takeda Pharmaceutical or another buyer, as first reported by The WSJ last week, the impact to the company's overall business will be nominal and the remaining assets don't warrant a higher multiple, Irina Koffler of Mizuho wrote in a report. 

Koffler also said she expects management to lower its 2016 guidance and longer term outlook on Thursday from both an revenue and Ebitda perspective. Drastically slower sales growth in Valeant's Xifaxan is likely to offset better growth seen within its Symphony Health unit, she noted. 

Xifaxan, which treats travelers' diarrhea caused by E. coli, is the key drug within Valeant's Salix portfolio.

From a balance sheet perspective, Valeant needs to maintain an interest coverage ratio of 2:1. In other words, the company needs to generate fiscal year 2016 Ebitda of $3.32 billion, relative to guidance of $4.8 billion to $4.95 billion, Koffler said. 

"Next year appears safe but is more worrisome due to divestiture uncertainty," Koffler said. "We don't see anything catastrophic." 

The Laval, Canada company, led by CEO Joseph Papa, is also anticipated to unveil new financial reporting across its key segments. 

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