Valeant's Disappointing Outlook Raises Default Fears

We plan to lower our fair value estimate for

Based on an initial, cursory analysis, we anticipate at least a 25% reduction in our current fair value estimate as we review our projections and the company’s debt service capabilities. While that suggests the stock may remain undervalued after the March 15 steep sell-off, we continue to caution investors that near-term volatility in this name is likely to remain extremely high. We plan to reduce out 2016 EBITDA estimate to approximately $5.6 billion, which is at the low end of management’s outlook and down from our previous forecast of about $6.8 billion. We may also review our narrow moat rating, but although we’re concerned about performance in the company’s higher-quality assets, such as gastrointestinal and ophthalmology, we still see reasonably healthy midteen returns on capital based on initial changes to our model if management sustains performance near its financial outlook.

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