Valeant Pharmaceuticals (VRX) Zacks Rank #1, is a healthcare provider with a focus on dermatology and eye care products. Valeant may provide a remedy for investors looking for growth in a macro environment filled with unease over higher interest rates, slow economic growth, and geopolitical strain. Interest rates have shot higher in recent weeks on firm U.S. labor market conditions and ideas the Federal Reserve could taper its asset purchase program in September, while the IMF recently hinted it could cut its global growth forecast due to the weak performance in emerging market economies. These dynamics are mixed social unrest in Egypt. Demand for healthcare products should be insulated from these macro dynamics, and growth shares in the healthcare sector may provide refuge for investors trying to avoid the pot holes of higher rates and slow global growth.
Valeant’s aggressive growth strategy and cost savings look attractive:
Valeant has produced vibrant revenue growth in recent years helped by an aggressive acquisition strategy. Valeant made 11 acquisitions in 2011 and another 12 in 2012. These actions helped to propel 108% revenue growth in 2011 and another 44% in 2012. In Late May, Valeant announced the purchase of Bausch and Lomb. The deal is expected to generate $800 mln in cost savings, an internal rate of return in excess of 20%, and be accretive to earnings. In a recent company presentation, Valeant highlighted an aging population, increased incidence of diabetes, and rising wealth in emerging nations as factors which will support growth in ophthalmology.
Earnings estimates are trending higher:
Of the nine analysts covering Valeant, five have moved their 2013 and 2014 earnings per share estimates higher in the past quarter. At the same time, the consensus earnings per share estimates for 2013 and 2014 have increased $0.29 and $1.39 to $5.93 and $7.92 respectively over the past quarter. The most accurate analyst is also projecting 2013 and 2014 earnings per share well ahead of the consensus forecast painting the potential for a further boost to the earnings picture, and the chance for an upside earnings surprise. The most accurate forecaster is predicting 2013 earnings per share at $6.85 almost a $1.00 over the consensus and 2014 earnings per share of $9.15 nearly $1.25 over the average estimate.
A large insider purchase suggests confidence in Valeant’s strategy:
A scanning of the SEC form 4 releases showed a Director acquiring over 1.35 mln shares of Valeant at $85.00 on June 19th. This transaction occurred just after Valeant’s purchase of Bausch and Lomb and prior to Valeant’s share price holding the $82.00 area for a second time. Technical traders may see the stock working higher out of a small double bottom formation off $82.00 on the recent rally over $88.67, and the lift as a sign of price strength. Lastly, Valeant issued 23.5 mln shares at $85.00 to fund its Bausch and Lomb acquisition on June 24th. Supply pressures from this issuance should be finished.
If the rash of headlines over Federal Reserve policy, slow emerging market growth, and unrest in the Middle East have you nervous about your investment portfolio, a dose of Valeant may be the medicine you need to heal your portfolio performance.
Nick Kalivas is the newest member of Zacks. He has written numerous articles on investment topics and market strategy.
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