There’s one rule of investing that people can’t forget to follow: keep an eye on your company’s competition. For Valeant Pharmaceuticals International (TSX: VRX) investors, a recent announcement by Merck just made their holding much more attractive.
On Oct. 1, Merck, a global pharmaceutical company, announced it was going to increase its focus on the 10 countries it knows best. Those countries include a number of developed nations and only a few emerging market regions.
That’s leaving entire areas open for the taking and Valeant — a specialty pharma company that focuses on dermatology, ophthalmology and over-the-counter medications — which already has a strong foothold in emerging markets is poised to fill that void.
Alex Arfaei, an analyst with BMO, increased his price target on Valeant after Merck’s announcement. “Merck’s reduced commercial global footprint not only lowers competition for Valeant but also probably creates product licensing opportunities, particularly in emerging markets where Valeant has infrastructure,” he wrote in an October 2 report.
He’s also increased his 2015 and 2016 revenues estimates by 1.1% and 1.8%, respectively, thanks to increasing growth in its emerging market business.
While the stock may be more attractive today than it was at the end of last month, it’s been a good bet for a while.
Its main attraction is that it’s a smart acquirer. Don’t forget that Biovail, one of the Canada’s most popular companies, merged with Valeant in 2010. The company has engulfed numerous other operations since.
Its most recent deal was another blockbuster. In May it announced it was making an $8.7-billion bid for popular eye care company Bausch + Lomb. That purchase, wrote Herman Saftlas, an S&P Capital IQ analyst, in an Oct. 5 report, is “a highly attractive deal.”
The purchase immediately makes Valeant a leader in the growing ophthalmology space and should result in more than $800 million in annual cost savings by the end of next year.
Thanks to that deal, and the December 2012 purchase of Medicis Pharmaceutical, Saftlas thinks the company can make about $6.1 billion in revenues this year, up from $3.5 billion in 2012.
It’s likely Valeant will continue acquiring in the months and years to come, says Louise Chen, an analyst with Guggenheim Securities, and that’s a big reason why she has a buy rating on the stock.
“More acquisitions through its roll-up strategy and a merger of equals will drive upwards earnings revisions,” she wrote in a Sept. 25 report.
While the stock price is up 85% this year, she thinks it could go higher if the Bausch + Lomb integration goes better than expected.
A number of other analysts are bullish on the stock too. According to Bloomberg, 82% of people who cover the company have a buy rating on it. It’s currently trading at $110 a share, but Chen thinks it can hit $119 over the next 12 months. Afraei has a $123 price target on the stock, while Saftlas has a $118 target.
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