Valeant Pharmaceuticals Intl Inc (NYSE:VRX) continues to face a flurry of legal calamities, from a T. Rowe Price-issued suit to a separate class action suit with TIA-CREF, a Fortune 100 financial services organization, as the lead plaintiff. Additionally, VRX has an onslaught of investigations on its hands, from the SEC to the Southern District Court of NY to the IRS.
As Wells Fargo analyst David Maris keeps an eye on these “many faceted legal woes,” the analyst pays special attention to the insider trading suit filled against Valeant and Pershing Square which stems from a collaborative attempted takeover of Allergan that ultimately failed to go through.
In light of the prospective downside VRX faces from its legal challenges, Maris reiterates an Underperform rating on shares of VRX with a valuation range of $17 to $22, which represents a 30% to a nearly 10% downside from where the stock is currently trading.
Yet, the analyst believes the insider trading suit has advanced with positive moves, as a key plaintiff motion was granted on September 23, which sets a December 31, 2016 deadline for the defendants to notify the court and the plaintiffs whether they plan to use counselor advise as an aspect of their defenses. This could enable a greater aggregate of discovery when claiming this to be a component of the defense, protecting plaintiffs from a “last moment” “disadvantage” surprise twist when defense closes fact discovery.
Maris comments, “We believe as we enter 2017, investors may be more concerned than they are now about a potential negative outcome of this trial. We would expect investor concern to eventually focus on potential selling pressure given a negative outcome as well as what might happen to Valeant’s balance sheet if they lose. According to FactSet, Pershing Square owns 21.6 million shares of VRX.”
“While many see lawsuits as small one-time costs of doing business, we often ask about the worst case scenario. With this case and other class action suits, we wonder whether investors understand that the stakes might not be in the tens of millions, but much larger. According to the Wall Street Journal, T. Rowe Price’s stake was worth more than $4.5 billion at its peak,” Maris concludes, adding that VRX has yet to take reserves for either AGN or litigation involving its ties to Philidor.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, four-star analyst David Maris is ranked #1,218 out of 4,197 analysts. Maris has a 49% success rate and yields 3.6% in his annual returns. Maris realizes 14.5% in average profits on the stock.
TipRanks analytics demonstrate VRX as a Hold. Based on 15 analysts polled in the last 3 months, 4 rate a Buy on VRX, 9 maintain a Hold, while 2 issue a Sell. The 12-month price target stands at $37.35, marking a nearly 54% upside from where the shares last closed.