Rodman & Renshaw: Valeant Still Worth $118 Despite 'Soap Opera'

Raghuram Selvaraju of Rodman & Renshaw reiterated his bullish stance on Valeant Pharmaceuticals Intl Inc (NYSE: VRX), a day after the company said its longtime CEO, Mike Pearson, would be stepping down and that he would continue to stay at the helm until his successor is identified.

Selvaraju has a Buy rating on Valeant, with a target price of $118.

Commenting on the leadership transition in a client note, Selvaraju said, "While we consider Mike Pearson to have been the face of the old Valeant, we believe that the events of the past several months have effectively made his leadership untenable and that the investment community as a whole expects change."

"Valeant is in the midst of having to make some difficult strategic choices, and we acknowledge that a new direction for the firm probably would benefit from new blood in the C-suite," the analyst added.

Related Link: Why Valeant's New CEO Could Be An Allergan Exec

Valeant also indicated it expects to file its 2015 10-K by April 29, 2016, a deadline that, if met, would enable the firm to maintain compliance with the covenants in its debt agreements. The firm also said that, in the event it is unable to meet the deadline, it would seek a waiver from its creditors.

The analyst is of the view that if Valeant files 10-K in a timely manner and avoid the event of a technical default, this could substantially remove the near-term overhang on the stock. However, he noted that the fallout from the Philidor debacle could make it difficult for the company to obtain an unqualified opinion from its auditors at PricewaterhouseCoopers (PwC).

The fact that Valeant admitted to having had "material weaknesses" in its internal controls makes it all the more unlikely that it would receive an unqualified opinion from PwC.

Meanwhile, the issues leading to accounting restatements at Valeant involved the firm's incorrect booking of $58 million in revenue upon delivery to Philidor rather than dispensation to customers. The firm also indicated that it may have double-booked some amounts because it booked certain revenue before it was certain that it could collect it.

Valeant is shifting the recognition of some of this from 2014 to 2015, which requires the revision of some of its historical EPS numbers while the total amount of net income earned in 2014 and 2015 remains the same.

"Restatements are never good, but some are worse than others," said Selvaraju, who compared Valeant's restatement with Akorn, Inc. (NASDAQ: AKRX) which overinflated its revenue and earnings numbers.