Downgrade Concordia International Corp. faces much more downside – CIBC
CIBC World Markets slashed its price target on shares of Concordia International Corp. to US$2.50 from US$7.80, citing concerns about its ability to repay debt obligations.
That implies downside of 38 per cent, based on Thursday’s closing price of US$4.04 on the Nasdaq.
Despite the Canadian specialty healthcare company’s US$350 million debt deal, which marks the end of its strategic review, analyst Prakash Gowd predicts a shortfall of approximately US$1.4 billion by 2023.
“While the added debt helps short-term liquidity, the company remains prohibitively levered,” he told clients, noting that Concordia’s interest expense rises by US$31.5 million annually.
Gowd did raise his revenue forecast for the company’s U.S. business following a presentation to investors that coincided with the debt deal marketing. However, the analyst continues to anticipate declining growth for this segment as competition remains tough for several key drugs.
He also warned that proposed drug pricing legislation in the U.K. may limit Amdipharm Mercury Ltd.’s (AMCo) ability to raise prices. Concordia acquired the company for US$3.5 billion in 2015.
“If Concordia does not effectively integrate AMCo and monetize its value over the long term, its investment into AMCo will be extremely dilutive to shareholder value,” Gowd said.
“The company has emphasized organic volume growth, steady cash flows, and deleveraging to be the focus going forward,” the analyst added. “However, Concordia may need to make acquisitions in the future to grow.”