Valeant Pharmaceuticals Rallies on Morgan Stanley Upgrade

Valeant Pharmaceutical (VRX) shares were surging in premarket trading Wednesday, after analysts with Morgan Stanley upgraded their rating on the struggling Canadian drugmaker to Overweight from Neutral, reinstating the rating they last held in September. After roughly 90% of Valeant's market cap has evaporated over the past 12 months, shareholders got a major boost Wednesday after an analyst team led by David Risinger published an investment note entitled, "Leverage Works Both Ways," highlighting that Valeant's $31 billion debt obligations may not be as perilous as some market doomsayers are saying. Debt covenants have become a particular concern for Valeant, as the drugmaker has accumulated a precarious leverage position after a several years of debt-fueled acquisitions. Morgan Stanley also increased its 12-month price target on Valeant to $42 from $33, basing the valuation on a potential 10% increase in Valeant's trading enterprise value to roughly $44 billion from $39 billion, which the analysts say could help drive shares by as much as 58%.

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