Should You Buy Valeant Pharmaceuticals Intl Inc. Stock Now, Ahead Of Earnings?

Valeant Pharmaceuticals will report its Q4 earnings on February 28th. VRX stock remains a risky bet going into the earnings.

Should You Buy Valeant Pharmaceuticals Intl Inc (VRX) Stock Now, Ahead Of Earnings

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Valeant Pharmaceuticals Intl Inc (NYSE: VRX) stock has been rallying going into this earnings season. Valeant stock is up by more than 20% since the beginning of February. VRX stock is currently facing resistance from the 100-day simple moving average trendline. The run in the stock has been driven by the FDA approval of "Saliq", a drug marketed by Valeant to treat adults with moderate-to-severe plaque psoriasis, and the company's asset sales plans. Valeant has announced asset sales of more than $2.5 billion since the beginning of the year. These asset sales will help in paring down some portion of Valeant's $30 billion debt which is holding down the stock.

Valeant's revenue decline will continue

The Quebec-based specialty pharma company is scheduled to report its Q4 and FY 2016 earnings on Tuesday, 28th of February. Valeant's revenue has been on a consistent decline over the past year and is expected to continue the trend for some time now. Analysts' expect the company to report an EPS of $1.22, down more than 50% from last year's Q4 EPS of $2.5. On the revenue front, analysts expect Valeant's revenue to decline by 16% to $2.34 billion. These estimates have been revised downwards multiple times over the past year. Given Valeant's recent history, there is a strong chance that the company may miss even on the revised earnings estimates. In the previous four quarters, Valeant Pharmaceuticals has missed earnings estimates by 6% to 16%.

2017 guidance will be the key

The recent asset sale plans will help the company in paying down its huge debt burden. The company has also identified another $8 billion of non-core assets which it can use for paying down its debt. But these assets sales will also impact its potential revenue and EBITDA, which Valeant can ill afford at this juncture. According to bond covenants which Valeant recently re-negotiated, Valeant needs to maintain interest coverage ratio above 2. Further loss of revenue will put pressure on its coverage ratio.

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Disclosure: Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a ...

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