Has Brexit Interrupted Valeant Stock’s Recovery?
Valeant Pharmaceuticals Intl Inc (NYSE:VRX) seems unable to break its fall. The Brexit hangover forced Valeant stock to hit a new 52-week low. The best that can be said for Valeant shareholders is that none of them are laughing all the way to the bank. Some may have lost too many tears to even cry. Valeant stock is down 93% from its high last year.
However, crying over spilled milk is an overrated hobby. If you still have Valeant shares, regardless of the price you had to fork out, selling them now is unwise. If anything, those with a little more of a penchant for risk—within reason—might consider buying some more VRX stock shares. The signs are that Valeant stock will recover. Analysts have issued a consensus short-term price target of $43.72 and a short-term median price of $35.50. (Source: “Higher Price Target Forecasts: Valeant Pharmaceuticals International, Inc. (NYSE:VRX) , Grifols, S.A. (NASDAQ:GRFS),” Is-stories, June 23, 2016.)
Valeant stock showed its resilience. VRX shares hit a bottom of $18.73 on the Brexit collapse of June 27 and bounced back to $20.29 on June 30. If VRX had no life left, the vultures would have shorted it to the ground by now. They had their chance and Valeant is still trading. Indeed, if anybody needs an argument that is more convincing, consider that the new CEO, Joseph Papa, acquired 202,000 shares of Valeant at an average price of $24.48, according to the Securities and Exchange Commission (SEC). (Source: “BRIEF-CEO Papa buys 202,000 Valeant shares – filing,” Reuters, June 13, 2016.)
Clearly, the new president and CEO of Valeant not only hopes that Valeant will regain its place among the world’s largest pharmaceutical companies; he seems to be sure of this.
A series of crises has decimated the value of Valeant shares, but there is a path to recovery. Valeant still has assets and they are still generating value. Papa, who joined the company in April, believes Valeant can recover by improving patients’ access to the medicines they need.
That may sound unusual for a company accused of overpricing its products, but Papa did the right thing by admitting the company made mistakes in its recent history. Still, Valeant shareholders should try, as much as possible, to focus less on the company’s past mistakes and more on its future. Papa is confident he can turn the company’s decline to growth in the next six months. (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.) Valeant has some $1.3 billion in cash and as such, Papa believes that the company will meet its obligations in 2016 and repay its $1.7 billion of debt this year. (Source: “Valeant CEO Papa plans to lower debt by more than $1.5 billion in 2016,” Reuters, May 23, 2016.) Debt is by far the biggest issue to resolve.
According to Papa, one of the main priorities for Valeant is to reduce its total debt, which totals $30.0 billion. One of the strategies to cut debt is for the company to start unloading assets, at least the non-core ones. However, Valeant will likely not be selling its prestigious names of Bausch & Lomb and Salix. Valeant has an important selection of dermatology and gastroenterology products in its lineup. These will be needed to keep generating revenue.
In 2015, Valeant bought one of the largest pharmaceutical companies in the developing world, Egypt’s Amoun Pharmaceuticals, for $850 million. This could be one of the assets that Valeant will try to sell.
Papa has tried to reassure investors by arguing that Valeant is trying to recover from a year of problems, including the pricing reviews in the United States and the delays in reporting financial results, not to mention the concern over its debt. In time, we’ll see whether Valeant stock can recover from all its turmoil.