It’s fair to say that Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is struggling to keep its head above the water. Earlier this month shares plunged to a seven year low after billionaire hedge fund manager Bill Ackman shocked the market with the revelation that his fund had exited the stock with a heavy $3 billion loss. Now Ackman has issued a “profound” apology to investors, calling his investment in Valeant a “huge mistake”. Valeant prices began to unravel following probes into the company’s business practices, accounting and drug pricing. This led Valeant to divest assets including its Dendreon cancer treatment business and three skincare brands to begin to repay debt accumulated from its sustained acquisition spree.
Now remaining investors- and indeed, the market as a whole- are left desperately wondering: can Valeant turn its fortunes around? Bill Ackman says current prices could “end up looking cheap” but he is just one investor who is clearly no longer prepared to wait around to find out.
We turned to our score system to find out what the other experts are saying. TipRanks score system combines six different elements of the market into one simple score. The score is calculated from expert sentiment, news and crowd wisdom and other data points on Valeant usually only available to hedge funds. The result: investors can make a clear, data-based, decision on whether VRX is a buy or a sell stock. In this case the 4.5 score does not bode well for Valeant especially given that, for example, a healthcare stock such as Gilead Sciences comes in at 6.4.
Wall Street Analysts
With a neutral score of 5 and an analyst consensus rating of hold, analysts are definitely cautious on VRX’s future. Largely due to the fall in VRX’s shares from close to $17 at the end of February, the average analyst 12-month price target translates into a sizeable 34% upside from the current share price of $11.
Stifel Nicolaus’ top analyst Annabel Samimy published a rare buy rating on the stock on March 14. She says Valeant “remains committed to its $5B debt repayment target by early 2018” and was encouraged by Valeant’s restructuring of $3 billion in debt which included removing/ modifying certain maintenance covenants. However, she did not publish a price target on the stock.
On the same day four-star Wells Fargo analyst David Maris reiterated his sell rating with an $11 price target with the stark warning that “Valeant shares currently carry too much risk for us to be comfortable recommending them as an investment.” He was highly discouraged by the abrupt exit of Valeant’s most powerful investor as “[W]e see this as a vote of no confidence for the stock and that things are continuing to go from bad to worse for Valeant.”
TipRanks’ unique algorithms extract relevant stock opinions from thousands of financial blogs- from which we can see that bloggers are fairly equally split between bearish and bullish when it comes to their Valeant recommendations.
The more bearish bloggers say that with the pharmaceutical business as a whole suffering due to sustained political criticism over drug prices, it is unlikely that a company like Valeant with debts of $30 billion can hope to recover any time soon. More bullish bloggers argue that in the long term investors can be rewarded with a turnaround if Valeant manages to sell meaningful quantities of new drugs such as Siliq (Brodalumab), which treats psoriasis while upping subscriptions for IBS-drug Xifaxan and Relistor.
TipRanks differentiates between informative and uninformative insider transactions. Investors track informative transactions which are deliberately made by insiders, and can reflect how insiders believe the company is about to perform. The last three insider transactions have all been informative buy transactions. Two weeks ago, VRX’s CFO bought $257,000 of stock, director Richard De Schutter bought $100,000 while corporate director Valueact Holdings purchased $32.5 million worth of shares bringing its total VRX holding to $213.5 million.
On the other hand, as Pershing Square Capital was a corporate insider (with Ackman a VRX director) the sale of Pershing’s shares earlier this month also counts as an informative sell transaction- lowering VRX’s overall insider score considerably.
“At its current market value, the Valeant position represented 1.5% to 3% of the various Pershing Square funds; however, the investment required a disproportionately large amount of time and resources. As a result, we elected to sell our investment and realize a large tax loss” Pershing said in a statement as it announced the sale of 27.2 million shares at around $11 per share.
Hedge Fund Managers
Hedge fund managers file 13F forms with the SEC every quarter. TipRanks tracks these filings to reveal the latest hedge fund transactions and the overall hedge fund sentiment on specific stocks. Factoring in Ackman’s recent shock exit, it makes sense that Valeant has a very negative hedge fund sentiment.
Fund manager Kevin D Eng of Columbus Capital Mangement did initiate a new position in VRX in Q4, although at a reported value of $10 million he is clearly not taking Ackman-level risks on the stock recovering.
At only 1.2, the news sentiment score for Valeant is worrying low. This is backed up by the TipRanks’ new news page which shows that the news on Valeant is much more bearish than the sector average which has a 74:26 bullish to bearish ratio. What does all this negative news cover? By looking at keywords extracted from the articles we can immediately see that the news concerns Bill Ackman as well as Valeant’s debt position.
Checking the list of Valeant articles reveals that Valeant’s former CEO Michael Pearson is suing the Canadian drug-maker for refusing to pay him for the three million shares he is allegedly owed. According to the lawsuit, VRX’s VP Christina Ackermann says “Valeant believes it would be inappropriate or inequitable in the current environment for Mr. Pearson to receive additional compensation – to the tune of millions of dollars – at a time when countless other Valeant employees have been asked to sacrifice for the good of the company and its shareholders.”
Perhaps surprisingly, tracking the 120,000 active TipRanks portfolios on the award-winning Smart Portfolio platform shows how Valeant is actually a very popular stock for TipRanks users. The VRX score for TipRanks users is 8.3/ 10 – by far and away the highest score across the board when compared to the low scores for insiders and hedge funds for example.