Don’t Give Up on VRX Stock
Valeant Pharmaceuticals Intl Inc (NYSE:VRX) stock dropped almost 15% on June 7 after posting poor results.
It could have been much worse. At the very least, after a year of turmoil amid legal and accounting problems, Valeant stock retains some value; it closed at $31.47, which is in the same range in which it has traded for the past three months. Indeed, the poor results have not shaken the stock in the same way as the $600-million reporting mistake that caused a major plunge last March.
So, for the time being, anyone who still holds Valeant stock may want to hold on to it. The bad results were not a surprise and if you didn’t expect them, you may have spent too much time watching Game of Thrones.
Analysts at Barclays, who are serious and realistic folks, have reiterated a “Hold” recommendation. (Source: “Valeant Pharmaceuticals Intl Inc (Vrx) Receives “Hold” Rating From Barclays,” LMKat.com, June 7, 2016.) Valeant has a consensus rating of “Hold” and an average target price of $79.19. (Source: Ibid.)
Indeed, at the current price, it does not look quite as bad as many had feared. The most important thing is that Valeant is still in business, accumulating revenue. This means investors can still pray as a last solution. Had it declared bankruptcy, no amount of religious hope could have helped matters. The other thing Valeant still has is the support of Bill Ackman, a hedge fund master.
No lipstick can make over Valeant stock now. It’s hurting and the fact that a mere year ago, the company reported $97.7 million ($0.28 per share) in profits only sharpens the pain. If you consider that Valeant was trading at $262.00 per share in August 2015, it may be time for some “Prozac.” Still, Valeant sent out plenty of signals that its first-quarter performance was going to cause pain.
The first-quarter results, as Valeant’s new president and CEO, Joseph Papa, said, reflect the many disturbances that the company has faced over the last nine months. Valeant has actually proven its resilience. Few companies could survive this recent experience, including a major investigation in the U.S. over steep price increases of certain medications, a board reshuffle, and major concerns over the company’s debt. (Source: “Valeant Pharmaceuticals International Inc stock dives after profit misses estimates, forecast cut,” Financial Post, June 7, 2016.)
Despite all that, Papa may have managed to persuade analysts that Valeant is on the right track for recovery. Having already dealt with the regulatory pain and legal investigations, Papa is well aware that Valeant must now focus on overcoming obstacles in winning back the trust of medical professionals, pharmacists, and consumers. The transformation plan that Papa, who has only acted as CEO for a month or so, must unleash will take months, if not years, to deploy.
The ultimate positive signal for jaded Valeant investors, who must shed any ill feelings in order to recover their losses (or make some money), is that Valeant still expects that little thing called revenue. It is supposed to come within a range of $9.9 billion to $10.1 billion with actual earnings of $6.60 to $7.00 per share to boot. If Papa can bring those results, investors will be nicknaming Valeant the “Revenant” of stocks.
Still there are some practical problems. Papa admitted that Valeant’s dermatological segment performed below expectations and that the 20-year distribution agreement signed earlier this year with Walgreens in the United States had encountered pitfalls. (Source: “Valeant shares plummet following slashed financial outlook,” The Globe and Mail, June 7, 2016.)
But there’s no point in dwelling on the negative after a company has literally come back to life, even if by all indications it should have died months ago. Valeant still has such popular brands like Bausch & Lomb, Salix, and the ultimate anti-nail fungal nail medicinal extravaganza, “Jublia.” These big sellers will be the key to paying off Valeant stock’s debt.