Stock (Symbol) |
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Valeant Pharmaceuticals (VRX) |
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Stock Price |
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$116 |
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Sector |
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Healthcare |
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Data is as of |
Expected to Report |
Oct 26, 2015 |
Feb 22 – Feb 26 |
Sharek’s Take |
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 Valeant Pharmaceuticals (VRX) is in a top of hot water right now. Valeant, formerly Biovail, develops and markets branded, generic, and over the counter drugs and medical devices. The company is based in Quebec, but is growing exponentially by acquiring other drug companies, including Bausch & Lomb in 2013 and more than 40 in 2014, then relocating the patents to Ireland where it has a factory to achieve a tax status of 3% to 5%. Last qtr I wrote “The only thing that can stop it is a change in the U.S. legislation or some kind of fraud.” Well, VRX has been all over the news for getting a subpoena from Congress, a negative article in the NY Times, and Citron Research’s research showing VRX’s relationship with drug distributor Philidor. All this is hard to digest — without having all the information. Valeant management has some cleaning up to do — and I hope there’s no fraud involved — but in the end the company owns assets such as Bausch & Lomb and those have to be worth something. |
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Fair Value |
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 My Fair Value on VRX is 15x earnings, which with current estimates points to $242. Yes that seems far-fetched right now. With pressure coming from Congress to stop jacking up prices of old drugs, VRX is pressured to stop doing so — but isn’t obligated by law (yet). Still, the negative publicity certainly hurts Valeant’s acquisition program, which is paramount to its growth. So this $16.11 profit estimate for next year is probably going to fall. My best guess is VRX ends up somewhere between its 52-week high and 52-week low, perhaps $150-$175. Currently, VRX sells for just 7 times 2016 earnings estimates. |
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Bottom Line |
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 Valeant has a lot of unresolved issues — but a lot of good assets as well. This isn’t an Enron that goes to zero, as its assets have to be worth something. Management will be forced to come clean about Philador and adjust its pricing plans for recently acquired drugs. I wanted to buy more VRX when it was around $100, but feel these issues will take time to resolve and for now the stock could go back-and-forth on headline risk. For now, I’ll sit and wait, and look for the stock to gain momentum. VRX ranks 19th of 30 stocks in the Growth Portfolio Power Rankings. I sold the stock from the Aggressive Growth Portfolio around $170.
Growth Portfolio 19 of 30Aggressive Growth Portfolio N/A |
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