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Pro Analysis

Valeant to rebound by 58%, says Morgan Stanley

Traders work beneath a monitor displaying Valeant Pharmaceuticals International Inc. signage on the floor of the New York Stock Exchange.
Michael Nagle | Bloomberg | Getty Images
Traders work beneath a monitor displaying Valeant Pharmaceuticals International Inc. signage on the floor of the New York Stock Exchange.

Investors should buy shares of Valeant Pharmaceuticals on prospect the company will successfully lower its debt load, according to Morgan Stanley, which raised its rating on the embattled drug maker to overweight from equal weight.

"Although VRX still faces risks, we see the upside skew as attractive. Risk of severe financial stress should diminish as covenants are renegotiated and VRX pays down debt, and deleveraging should drive equity value accretion," analyst David Risinger wrote in a note to clients Wednesday.

"We expect management to successfully renegotiate debt covenants for a small amount (est. $60M extra annual interest expense), improve operating income & cash flow, and pay down debt."