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Aggressive Growth

Valeant Pharmaceuticals International, Inc. (VRX - Analyst Report) has delivered positive earnings surprises for six straight quarters. Shares of this multinational specialty pharmaceutical company have been on an uptrend since July 2012 and are currently hovering around the 52-week high of $62.11. The company has benefited from its growth-by-acquisition strategy and its impressive third quarter results.

With a more than 24% return in the past year and a long-term expected earnings growth rate of approximately 18.6%, this Zacks #1 Rank (Strong Buy) looks like a solid growth pick.

Medicis Acquisition- A Positive Catalyst

On December 11, Valeant Pharma completed its purchase of fellow specialty pharma company Medicis Pharmaceutical Corporation for $44.00 per share in cash. The offer price represented a premium of approximately 39% over Medicis’ closing price of $31.49 on August 31, 2012.

The deal will not only broaden Valeant Pharma’s product portfolio significantly but is also expected to create a global leader in the dermatological field. The acquisition will add products to Valeant Pharma’s product portfolio, such as Solodyn, Perlane, Restylane, Ziana, Dysport and Zyclara.

At the time of announcing the deal, Valeant Pharma stated that the combined US revenues of both companies’ dermatology and aesthetics portfolios are expected to cross $1.7 billion.

Solid Third Quarter Results

On November 2, Valeant Pharma reported third quarter adjusted earnings of $1.11 per share, which beat the Zacks Consensus Estimate by 1.83% and last year’s earnings by 79.0%.

Revenues were up 47.2% to $884.1 million, thanks primarily to higher product sales. Revenues surpassed the Zacks Consensus Estimate of $873 million. Product sales rose 50% to $856.9 million during the third quarter.

Research & development expenses climbed 9.7% to $19.2 million. Selling, general & administrative expenses increased 40% to $188.7 million.

Earnings Estimates Show Growth

Over the last 30 days, the Zacks Consensus Estimate for 2012 has increased 0.9% to $4.49 per share, aided by upward revisions from both estimates. This implies year-over-year growth of approximately 64.3%. Moreover, the Zacks Consensus Estimate for 2013 increased more than 20% to $5.99 in the same time, representing a year-over-year increase of 33.6%.

Reasonable Valuation

Currently, Valeant Pharma is trading at a premium to its peers based on P/S and P/B. The premium valuation seems justified given the company’s solid earnings growth prospects. Its long-term expected earnings growth rate of 18.6% compares favorably with the peer group average of 17.0%, indicating room for further expansion. Moreover, its return on equity (ROE) of 33.2% is higher than the peer group average of 21.4%.

The share price has been generally tracking the company’s earnings performance. Given the increasing trend of the Zacks Consensus Estimate, the share price should continue increasing.

Valeant Pharma, headquartered in Montreal, Canada, is a multinational specialty pharmaceutical company engaged in the development, manufacture and marketing of various pharmaceutical products, particularly in the areas of neurology, dermatology and branded generics. Valeant Pharma’s branded pharmaceutical products are sold in the US, Canada, Australia and New Zealand. The company, which has a market cap of $18.22 billion, aims to expand further through deals/acquisitions.


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