This Is No Reason to Sell VRX Stock
Valeant Pharmaceuticals Intl Inc (NYSE:VRX) may have left its worst days behind. Valeant had experienced lows its investors never even considered in their nightmares in mid-June, but VRX stock has gained no less than 22.9% in the past three weeks.
VRX stock fell to a fresh 52-week bottom following the Brexit sell-off and what a bottom it was, given it was no less than 93% lower than the stock’s 2015 high. It’s impressive how much difference just a year can make. In the summer of 2015, Valeant was setting record highs as the company went on an acquisition binge; now, it’s paying with protracted indigestion, but it has left the pits, which makes it an interesting proposition.
Is There More Downside for VRX Stock?
VRX stock carries just a small but significant level of risk now. Those who kept Valeant through the hardest days may yet manage to recover some value, even if it’s unlikely that VRX stock will hit the lofty $90.00–$100.00-per-share levels of last year. Those who are considering a risky proposition that won’t break the bank, however, may want to consider looking at Valeant stock, because the company is in full recovery mode.
On July 15, Valeant stock was trading lower because its former CEO, Michael Pearson, has apparently sold some $100 million worth of stock. The emphasis here is on “former” CEO. Indeed, Joseph Papa, the company’s new CEO, bought 202,000 Valeant shares at about $24.48 each, or $5.0 million in total, according to the Securities and Exchange Commission. (Source: “BRIEF-CEO Papa buys 202,000 Valeant shares – filing,” Reuters, June 13, 2016.)
That endorsement, on a dollar-for-dollar basis, is five-times stronger than Pearson’s sale. After all, he may have many perfectly legitimate and legal (as in the fees for lawyers) reasons for liquidating assets. He did face scrutiny from the U.S. Senate after all. As for VRX stock, it simply explained that Pearson exercised options and sold common shares in June to satisfy certain tax obligations. “Nothing to see here,” then, is the right attitude.
Pearson is part of the past. Papa is the new and highly optimistic executive now who is doing everything possible to save Valeant shareholders’ savings. He has already set Valeant on a new course and Pearson seems to think so too, because he still owns 3.5 million Valeant stock shares. If he had no confidence in his successor’s leadership, he would have sold the whole lot.
Papa said that Pearson’s personal transactions do not reflect the current viability of Valeant, but it seems to me that Pearson still trusts the company and its new management team. (Source: “Valeant reassures investors ex-CEO Pearson remains significant shareholder after stock sale,” BNN, July 14, 2016.)
There’s that and the fact that Pearson is obliged to keep at least one million shares of Valeant in the two years following his departure, which took place in May of this year.
As for the future, Valeant’s new leadership has conceded that the company made mistakes in the past, especially where pricing is concerned. Valeant’s new CEO seems rather sure he can turn the company around and that he will start delivering the first big results in early 2017. (Source: “Valeant Pharmaceuticals International Inc has ‘bright future,’ CEO says, even as drugmaker slashes full-year outlook, sees stock plunge,” Financial Post, June 7, 2016.)
The Bottom Line on VRX Stock
Valeant is now focusing on cutting down its $30.0-billion debt, which is the company’s biggest issue. (Source: “Valeant CEO Papa plans to lower debt by more than $1.5 billion in 2016,” Reuters, May 23, 2016.)
Valeant simply grew too fast. It has to get rid of some of its shopping binge excesses like Egypt’s Amoun Pharmaceutical, for which Valeant paid $850 million. Valeant has also retained and will likely continue to generate revenue from some good businesses like Bausch & Lomb and Salix, alongside valuable dermatology and gastroenterology brands.
Considering that VRX stock is recovering, trimming where needed and keeping what counts could be its key to a brighter future.