Valeant (VRX) reported Q4 earnings Tuesday morning and it did not go well. The company reported revenue of $2.40 billion and eps of $1.26. Valeant beat on revenue and earnings, but the stock was off 9% in early morning trading. I had the following takeaways on the quarter:

How Far Will Valeant Fall In 2017?

Valeant burnished its reputation as a momentum stock by rapidly growing revenue through acquisitions and price increases. The company is now committed to paring debt, divesting non-core assets and beefing up R&D. VRX bulls have bought into the company's growth story, but Q4 earnings suggest otherwise. Q4 revenue fell 3% sequentially and 13% Y/Y.

Bausch & Lomb International was the best performer, down 1% Y/Y. Revenue from Branded Rx and U.S. Diversified fell 17% and 30%, respectively. The lion's share of Branded Rx revenue is derived from Salix and Dermatology. Salix was off 5% sequentially and 17% Y/Y. Valeant went to market with Salix in Q4 2016, but had trouble selling it. With revenue in decline, I now see why. Dermatology revenue was off 4% sequentially and 28% Y/Y. The loss of Philidor has hurt volume and pricing for Dermatology drugs, and I expect it to continue in the near term.

U.S. Diversified fell 15% Q/Q and 30% Y/Y. It is well known that Neurology products are facing pricing pressure and competition from generics. I expect double-digit revenue declines to continue for 2017. The rub is that Bausch & Lomb is the one segment that's declining the least, yet it has the lowest EBITDA margins. I expect the continued demise of Branded Rx and U.S. Diversified to have an outsized impact on Valeant's forward EBITDA.

2017 Guidance Likely Disappointed The Market

Management guided on 2017 revenue from $8.90 - $9.10 billion, and on adjusted EBITDA from $3.55 to $3.70 billion. The company's run-rate revenue and EBITDA is approximately $9.61 billion and $3.55 billion. At the bottom end of Valeant's range its 2017 revenue could be down by just over 7%. The company could potentially hit this bogey, though I think another double-digit decline is more realistic.

The bigger issue could be EBITDA declines. The bottom end of the range ($3.55 billion), equates to zero growth versus Valeant's run-rate of $3.55 billion. Q4 EBITDA was off 16% sequentially and 32% Y/Y. What's to keep EBITDA from free-falling in 2017? Secondly, EBITDA margins for Branded Rx (north of 55%) and U.S. Diversified (north of 70%) were downright gaudy heading into the quarter. Revenue declines in these segments will likely punish the company's forward EBITDA and EBITDA margins. Said another way, I expect 2017 EBITDA to fall below the low end of management's range.

Debt/EBITDA Is A Concern

Valeant's Q4 debt was $29.8 billion. If you assumed proceeds from recent divested assets of $2.1 billion (assumes no tax impact) were to go to reduce debt, the debt would fall to $27.7 billion. At the low-end of the 2017E EBITDA range, debt/EBITDA would be about 7.8x; I consider this and optimistic case. After divestitures Valeant's debt/EBITDA would increase over its 7x metric heading into Q4. However, the businesses that remain have lower growth prospects. I find this a cause for concern.

In addition, the company still faces legal risks related to Philidor and an insider trading case pursuant to its takeover attempt of Allergan (AGN). I do not see why anyone would be bullish on VRX with these headwinds. Nothing I saw in the report would make me increase my $1 sum-of-the parts valuation. VRX remains a sell.