VRX looks very doomed

The single most important Valeant Pharmaceuticals metric
This leads us to a key metric -- arguably the most important metric that can help determine whether or not Valeant Pharmaceuticals is worth buying: the company's EBITDA-to-annual interest costs on debt.

Prior to its woes, Valeant was able to maintain an EBIDTA-to-interest cost coverage ratio that was often 3.5 or higher. In easier-to-understand terms, it was generating at least 3.5 times in EBITDA what it was paying out to cover the costs on its debt each year. The higher the EBITDA-to-interest cost coverage ratio, the more faith lenders are liable to have in Valeant's ability to repay its debts.

However, when Valeant's M&A machine came to a grinding halt, and its pricing power was drastically reduced, its sales, profits, and EBITDA fell. Between mid-December and early June, Valeant wound up cutting its fiscal 2016 forecast twice. Originally expected to generate $12.6 billion in sales and $13.50 in EPS at the midpoint, Valeant's June update called for $10 billion in sales and $6.80 in EPS at the midpoint. With profits falling, so was the company's EBITDA forecast. As of the end of Q2, Valeant is anticipating EBITDA of $4.8 billion to $4.95 billion for fiscal 2016.



Here's the problem: Valeant reported $892 million in first-half interest costs in 2016, which extrapolates out to nearly $1.8 billion in 2016. This would put Valeant on track to deliver an EBITDA-to-interest cost coverage ratio of around 2.75-to-1. The good news is newly forged lending agreements that'll see Valeant accept higher interest rates and pay concessionary fees should keep Valeant from violating its debt covenants (which had been set at an EBITDA-to-interest cost coverage ratio of 2.75-to-1). However, Valeant's EBITDA-to-interest cost coverage ratio could remain well below three for the foreseeable future.

As the company looks to sell assets, it should be able to reduce what it's paying annually in interest. But, its EBITDA will be reduced as well. The company's $2 billion in non-core assets that it's trying to sell generates in the neighborhood of $725 million in annual EBITDA. It may be tough for Valeant to get its EBITDA-to-interest cost coverage ratio back above 3.5 (i.e., what I'd arbitrarily consider a healthy level) without selling at least some of its core assets. Of course, if Valeant does sell core assets, its future growth could be compromised. Furthermore, it may be tough for Valeant to receive a fair value for its assets given its noted problems.








For the time being, Valeant's EBITDA-to-interest cost coverage ratio is giving investors every indication that this stock should be avoided. But, if we begin to witness steady improvement in this ratio with an eventual climb back over 3.5, it could be worth reevaluating Valeant as a possible buy.

 

Junk yard dog.

 

JYD. You said it brother

 

read it and weep VRX scum!

 

The fat sloppy managers will award themselves retention bonuses, and they will jack up your goals to ensure they alone get enriched through everything. I am so sorry you are so damn stupid. But the suckers in life all get the shaft. That is how it all works.

 

Papa and all the top exec's will make sure they get paid a pretty penny no matter what.