A rosy growth outlook is lighting a fire under the shares of Valeant Pharmaceuticals International Inc. only three months after its merger with Biovail Corp.
After Valeant revealed its 2011 profit and revenue guidance on Thursday, its stock jumped by almost 19 per cent on the Toronto Stock Exchange, closing the day at $35.45. That's more than double the price it traded at in its previous incarnation as Biovail just before the merger deal was announced last June.
Valeant's chief executive officer Michael Pearson told analysts on a conference call that the company expects to generate $2.1-billion (U.S.) to $2.3-billion in revenue this year, representing sales growth of about 8 per cent. And the company hopes to push that to at least 10 per cent in future years.
Cash earnings per share will be in the $2.25 to $2.50 range in 2011, he said, up from about $2.12 in 2010.
In another piece of good news, Mr. Pearson said Valeant will save as much as $250-million in 2011 through the merger with Biovail, up from the $200-million in "synergies" it had projected last September. Over the longer term, the merger will save more than $300-million, he said, far more than the initial projections of about $175-million.
Analyst Annabel Samimy of Stifel Nicolaus in New York said these numbers, plus the company's low tax rate of 10 to 15 per cent for 2011, are better than expected. "On all levels it is pretty promising," she said.
The financial projections don't include the effects of any further acquisitions, and Mr. Pearson said Valeant wants to make at least five non-U.S. purchases or partnerships this year, although none of these deals will likely be as big as the merger with Biovail.
The purchase prices would likely be in the $200- to $500-million range, he said. The company is looking for relatively small private companies in emerging markets - and ones that could benefit from a shake-up to become better performers.
Mr. Pearson's skills in integrating Valeant's acquisitions is one of the reasons for the firm's positive outlook, Ms. Samimy said. "He takes companies that he feels are broken or poorly managed, and he runs them better."
His speed in taking charge was evident at Biovail, she said, even thought that deal was presented as a merger rather than a takeover.
While Biovail CEO Bill Wells stayed on as chairman of the merged entity, he left in December, less than three months after the deal closed. Biovail's chief financial officer Peggy Mulligan, who took that position at the combined entity, also quit in December.
Mr. Pearson attributed the departures to "slightly different philosophical approaches to running the business." In Ms. Mulligan's case, he added, "I think she felt the chemistry wasn't perfect."
Some analysts say Valeant's stock still has room to rise. Marc Goodman of UBS Securities LLC raised his one-year target to $40 from $34 Thursday, and told clients in a report: "Don't sell yet. We believe there is considerable upside for the stock."
But the current price has raised a caution flag for other investors. Jason Hornett, who manages the Bissett All Canadian Focus Fund, which owns about 250,000 Valeant shares, expressed caution. "I wouldn't be a buyer of it [at this price]" he said. The current level "factors in the top end of the guidance that management provided, and probably some expectations by investors that they'll beat the top end."