Don Morgan has accomplished a great deal in over a decade since he first founded hedge fund firm Brigade Capital Management alongside Patrick Kelly. Only the best-performing hedge funds in the world win an award like Firm of the Year from Absolute Return Awards- a reputable feather now in Brigade’s cap as of March last year. How does this portfolio manager and Street-side entrepreneur size up giants of the chip-verse and biotech world? In opposite throw of the dice, Morgan is stepping into Advanced Micro Devices, Inc. (NASDAQ:AMD) just as he walks out of Valeant Pharmaceuticals Intl Inc (NYSE:VRX), leaving every last share in the dust.
With a home base in the big apple, Brigade also has offices in London as well as Tokyo. The private equity hedge fund cares about leveraged finance, as Morgan keeps a sharp investment eye in equity as well as making moves in fixed income markets. Brigade’s investments largely gravitate between finance, healthcare, utilities, and energy sectors.
Let’s explore how Morgan’s big plays, from initiation in AMD to calling mayday on Valeant, measure up against the word of the Street:
AMD Grabs an Almost $8 Million Bet from Brigade
Morgan initiated a new position in AMD, buying 752,500 shares worth $7,736,000. For a chip making empire that just five days ago made its way to Fast Company’s “World’s Most Innovative Companies” top ten list for 2018, it seems Morgan has good timing for this tech bite.
AMD is shining in the Consumer Electronics sector thanks to a powerhouse, first-rate PC market performance with Ryzen processors line. This prestigious ranking follows suit just as the chip giant sets to mark a full year after releasing its Ryzen 7 desktop processors to the market.
The company’s chief marketing officer John Taylor notes, “In 2017 AMD introduced an unprecedented nearly 100 different high-performance CPU, GPU and APU products.”
Taking the news in stride, “AMD is honored by this recognition from Fast Company, especially for how it celebrates the passion and determination of our employees around the world to design and bring to market industry-leading computing and graphics products. We look forward to continuing in 2018 and beyond our journey to transform people’s lives for the better through high-performance computing,” adds Taylor.
However, one tech player does not take AMD as a serious mover and shaker here. Dell’s Chief Technology Officer John Roese says AMD better watch out for Intel, the “dominant player.” “Intel is the big player, AMD is the second player,” explains Roese, commenting: “There’s enough diversity between them that there are use cases to have them both in our portfolio, but just the sheer breadth of the Intel processor portfolio is massive compared to even the accelerated AMD world.”
The Dell leader sees AMD as an “innovative” company, but a mere “challenger” against Intel’s heavyweight number one champion of the semiconductors at the end of the day: “AMD is doing some interesting things, and by adding them to the portfolio we pick up a few extra areas, but let’s be very clear: there is a huge, dominant player in compute semiconductors, and then there is a challenger which is doing some very good innovative work called AMD, but the gap between them is quite large in terms of market share and use-cases. So our portfolio is not going to change in any meaningful way.”
Ultimately, Wall Street is just not sure yet about this chip giant, but the optimists still win out in the bigger picture. TipRanks indicates a cautious analyst consensus circling AMD shares. Out of 12 analysts polled in the last 3 months, 5 rate a Buy on AMD, 4 maintain a Hold, while 3 issue a Sell. The 12-month average price target notably stands at $15.28, marking a healthy return potential of 28% from where the shares last closed.
Valeant Gets Put on Morgan’s Chopping Block
Morgan ditched every one of his 300,000 shares in Valeant, a stake that was worth a whopping $6,234,000. It is not such a shocking play; after all, though Danish CEO Kare Schultz has been brought in to make the tough calls to save the day, this giant still has a lot left in its comeback narrative before winning over the Street.
However, there remains fuel for optimism on the company. The company just won itself a bull to its confident camp, as one analyst wagers there is meaningful upside potential throughout 2018 should the VRX team keep executing well.
Believing the company is rolling out key moves to bolster its business, Deutsche Bank analyst Gregg Gilbert upgrades from a Hold to a Buy rating on VRX stock with a $20 price target, which implies a close to 30% upside from where the shares last closed. (To watch Gilbert’s track record, click here)
“With the shares off 20% (S&P 500 index down 2%) since the company reported solid 4Q results and a decent 2018 outlook,” the analyst notes he pegs a high price target for the next 12 months. There is reason to be confident, argues Gilbert, even as some ghosts of debt still chase the giant.
“While challenges remain, most notably the heavy debt load, we believe VRX is doing the right things to strengthen the business, including investing behind core growth franchises, reducing legal liabilities, and strengthening the balance sheet. We particularly like that management is now confident enough in the business to have established longer-term revenue and EBITDA targets, which it did not set lightly. It is important to note that we expect the stock to remain highly volatile, with trading often seemingly disconnected with fundamentals,” asserts Gilbert, making a bullish case.
H.C. Wainwright Ram Selvaraju wavers somewhere between Morgan’s bearish strike out of all VRX shares and Gilbert’s new vote of confidence.
Following the biotech giant’s fourth quarter earnings show, the analyst stays on the sidelines, but has lost some enthusiasm. Selvaraju believes that next year could be more promising, but this year has him anticipating the wheels still turning on a much-needed comeback for Valeant.
As such, the analyst rates a Neutral rating on VRX stock and cuts the price target from $18 to $16, which implies a close to 4% upside from current levels.
For the fourth quarter, Valeant set a top-line revenue guide for this year from $8.1 to $8.3 billion, which did not meet Selvaraju’s original forecast calling for $8.56 billion. Moreover, the analyst takes under account that the company’s adjusted EBITDA outlook of $3.05 to $3.2 billion is quite a fall from a former around $3.7 billion in adjusted EBITDA posted last year.
“This appears to signal that Valeant is likely to continue to experience headwinds from further losses of exclusivity (LoEs) during the 2018 time frame along with the negative impact of divestitures conducted during 2017, which are unlikely to be entirely counterbalanced by the impact of potential new drug launches,” fears Selvaraju, adding: “we believe that 2018 is likely to be another turnaround year for the company, which is not out of the woods yet.”
Even with some apprehension, the analyst nonetheless recognizes key “achievements” from VRX’s savvy management team, giving kudos to strategic moves of “aggressively paying down debt, refinancing the remaining debt stack to extend maturities, generating more operating and strategic flexibility, and revitalizing the company’s late-stage pipeline.”
Bottom line, “In our view, 2019 should constitute a period of operational growth vs. 2018 and Valeant’s operating performance should markedly improve in the years beyond as the impact of new product launches and continued debt reduction begins to be realized,” contends the analyst, leaving room to get more confident despite his price target chop.
TipRanks shows analyst sentiment is encouraged, but not willing to take the gamble on the beleaguered biotech giant quite yet. Out of 12 analysts polled in the last 3 months, perspectives are evenly split between the camps: 4 are bullish on Valeant, 4 remain sidelined, and 4 are bearish on the stock. However, considering these analysts’ expectations, the 12-month average price target of $20.06 stands tall, suggesting solid return potential of 30% from where the shares last closed.