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https://seekingalpha.com/article/4064441-valeant-unfairly-un…
Valeant Is Unfairly Undervalued II
Apr. 23, 2017 10:47 PM ET|
147 comments|
About: Valeant Pharmaceuticals International, Inc. (VRX)
Fact Finder
Fact Finder
Foreign companies, value, healthcare
(96 followers)
Summary
Long-term bankruptcy risk is all priced in.
Sell-side analysts acknowledged positive turnaround developments.
New CEO and CFO have solid track records.
Unfairness comes from intended market manipulation.
Since our last article, there have been interesting discussions around issues we raised. Unfortunately, we continue to see misunderstandings in the market. We'd like use this article to future elaborate our points.
1. Exaggerated bankruptcy risk, AGAIN
We modeled the cash flows Valeant (NYSE:VRX) could generate in 2017, 2018 and 2019. Our model of Free Cash Flow to Equity (FCFE) is as below:
Figure 1. FCFE for 2017E to 2019E
(Note: our model is in line with most major Wall Street firms)
Valeant can generate $3.26 billion for equity holders in three years. Yet Valeant's stock is trading with a market cap of $2.96 billion now. In other words, if one invests in Valeant's stock today, he/she will be able to get his/her money back from cash flows before the debt maturity issue is called into question in 2020! This extreme valuation has priced in 100% risk of the company going bankrupt in 2020. At this valuation, the stock should go up significantly with any positive development.
During the first quarter, Valeant made great progress by successfully refinancing at a reasonable cost, being able to walk away from a low-ball deal of iNova, and potentially beating the street consensus. These are clear signs that the management team is making progress turning around the business. We are starting to see the light at the end of the tunnel.
2. A good quarter seen by sell-side analysts
Recently, some analysts start to acknowledge the elimination of Valeant's bankruptcy risk before 2020, and the likelihood of Valeant to beat the first quarter consensus. However, despite the fact of positive developments, one particular analyst lowered his price target:
"Maris, too writes that Valeant might beat forecasts, but he doesn't feel the need to change his Underperform rating on the stock, and even dropped his price target to a range of $7 to $9 from a range of $10 to $13."
He explains the price cut by repeating the same worries he had before:
"According to Valeant, debt maturities in the next three years are only approximately $1.5 billion. However, in 2020 and beyond the maturities increase rapidly with $5.8 billion due in 2020 and a total of $22.2 billion due 2020-2023. We believe VRX will not generate enough free cash flow between now and 2023 to pay its maturities. Will VRX be in a better positon in the coming years to once again extend the maturities or perhaps reduce debt via an equity offering or asset sales? Maybe. However, we believe risks such as the patent challenge to Xifaxan, potential legal liabilities, and the potential difficulty in executing sizable attractive divestitures could mean that the refinancing picture looks worse in three years."
This is the first time we see a company, which made significant improvements and potentially beats consensus receives a price target cut. In a turnaround situation, one can remain skeptical until more positive developments are made. However, after the management team delivered their guidance and made fundamental improvements, one should have more confidence about the company's ability to clear additional hurdles in the future. Price target should be lifted, not cut! This analyst was making claims against the data he presented! The logic behind lowering price target by 30% as a result of positive fundamental developments is seriously flawed.
Anyway, we appreciate his data point as a validation of the company's turnaround efforts, regardless of his flawed analysis.
3. Predict the future
How should one predict a company's future? It should be mainly based on the management team's historical track records and the delivery of projections they made.
3.1. Management's track records
We'd like to reiterate that Valeant's new management has solid track records. Here are some examples:
Figure 2. Papa's last 4-year performance as Perrigo' CEO
Figure 3. Herendeen's performance as Zoetis' CFO
(Note: The miss was mainly due to impairment/revaluation charges of $0.16 EPS (non-cash))
Figure 4. Stock performance during Papa's CEO tenure at Perrigo
It appeared to us that Papa and Herendeen are capable executives. After joining Valeant, they laid out a clear blueprint: Stabilize in 2016, Turnaround in 2017-2018 and Transform in 2018+. And they executed this plan step by step.
Figure 5. Valeant's positive development before 2016Q4. (Source: company presentation)
The new management also tries to guide investors conservatively. This idea is supported by Herendeen's repeated communications in earning calls:
"We think of guidance as a commitment."
Our points resonate with some great minds in the markets, e.g. Bill Miller:
"He (Herendeen) is logical and rational and understands how to create value. He said when hired that he viewed guidance as a 'commitment.' We took that to mean guidance would likely be quite conservative. "
We choose to give more credits to the new management, instead of those "know-it-all" outsiders.
3.2. Papa's due diligence on Valeant
It also intrigued us that why Papa joined Valeant. Why was a well-respected CEO willing to join a notorious company, giving up stable income and golden parachute, in exchange for mostly stock-based compensation? We thought we found the answer from Papa's CNBC interview, where Papa said:
"I've been in pharmaceutical industry for 35 years… What I always try to do is going to the data… I did my diligence. I look at Valeant not just from the level of noise - They have great brands, global, and what really surprised me is their pipelines."
We believe that Papa has seen much more than outsiders. And the facts he found are worth the bet of his entire career and reputation.
Again, Papa and Herendeen demonstrated their confidence in Valeant using their own money. Papa has purchased $5 million Valeant shares when he joined Valeant and Herendeen purchased $257K in March of 2017.
As mentioned above, even the bashing sell-side analysts are forced to acknowledge the recent improvements the new management has made. We are progressively getting more confidence about Valeant's future. Positive price action is likely to happen in the near future.
4. Unfairness in the game
Again, investing is a probability game. Everyone make mistakes. Black swan events make our projections even worse. We, Papa, Herendeen, Bill Miller, ValueAct, and all the new management might have made the wrong bet.
That's fine. We make mistakes, and we eat up the results. This is fair. However, we disagree with the unfairness in market manipulations.
4.1. Exploiting retail investors
Institutional investors only account for 44% of Valeant's outstanding shares. Typical retail investors are short of extensive financial tools, reliable information channels and sufficient time to dig into details. Most of them do not have access to brokerage reports in a timely fashion. When a new report is published by so-called "experts", they can only see the headlines from media platforms. Especially when we found out that some of those most broadcasted "experts" might be biased, we are concerned. Per our understanding, many of Valeant's positive developments have been negatively spun, on purpose.
4.2. Impact on algorithm trading
In this digital age, negative news influences people, as well as computers. For example, one can find a sentiment score attached to every piece of financial news. Positive news has plus signs, and vice versa.
Many algorithm trading firms use sentiment scores and key words in news articles to generate trading signals. These methods are based on title, key words and basic logic with no regards to truthfulness or originality. This limitation creates huge opportunity for manipulators to use recycled old news and intentionally tweaked bad news across different media platforms to profit from computer-generated sell orders. And sometimes it even triggers momentum trading signal, when the stock is on a downward spiral.
Fortunately, SEC has already brought action against 27 individuals and firms who seemly independent and unbiased but secretly compensated by touting company stocks. We believe SEC will discover more similar behaviors and improve the fairness in the market.
Conclusion
Valeant's extremely low valuation has provided enough margin of safety for rational investors. Manipulators' negative spins have made the stock a loaded spring. Even the bashing analysts were forced to acknowledge positive developments, regardless of their flawed analysis. We are starting to see the light at the end of the tunnel.
Disclosure: I am/we are long VRX.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
https://seekingalpha.com/article/4064441-valeant-unfairly-un…
Valeant Is Unfairly Undervalued II
Apr. 23, 2017 10:47 PM ET|
147 comments|
About: Valeant Pharmaceuticals International, Inc. (VRX)
Fact Finder
Fact Finder
Foreign companies, value, healthcare
(96 followers)
Summary
Long-term bankruptcy risk is all priced in.
Sell-side analysts acknowledged positive turnaround developments.
New CEO and CFO have solid track records.
Unfairness comes from intended market manipulation.
Since our last article, there have been interesting discussions around issues we raised. Unfortunately, we continue to see misunderstandings in the market. We'd like use this article to future elaborate our points.
1. Exaggerated bankruptcy risk, AGAIN
We modeled the cash flows Valeant (NYSE:VRX) could generate in 2017, 2018 and 2019. Our model of Free Cash Flow to Equity (FCFE) is as below:
Figure 1. FCFE for 2017E to 2019E
(Note: our model is in line with most major Wall Street firms)
Valeant can generate $3.26 billion for equity holders in three years. Yet Valeant's stock is trading with a market cap of $2.96 billion now. In other words, if one invests in Valeant's stock today, he/she will be able to get his/her money back from cash flows before the debt maturity issue is called into question in 2020! This extreme valuation has priced in 100% risk of the company going bankrupt in 2020. At this valuation, the stock should go up significantly with any positive development.
During the first quarter, Valeant made great progress by successfully refinancing at a reasonable cost, being able to walk away from a low-ball deal of iNova, and potentially beating the street consensus. These are clear signs that the management team is making progress turning around the business. We are starting to see the light at the end of the tunnel.
2. A good quarter seen by sell-side analysts
Recently, some analysts start to acknowledge the elimination of Valeant's bankruptcy risk before 2020, and the likelihood of Valeant to beat the first quarter consensus. However, despite the fact of positive developments, one particular analyst lowered his price target:
"Maris, too writes that Valeant might beat forecasts, but he doesn't feel the need to change his Underperform rating on the stock, and even dropped his price target to a range of $7 to $9 from a range of $10 to $13."
He explains the price cut by repeating the same worries he had before:
"According to Valeant, debt maturities in the next three years are only approximately $1.5 billion. However, in 2020 and beyond the maturities increase rapidly with $5.8 billion due in 2020 and a total of $22.2 billion due 2020-2023. We believe VRX will not generate enough free cash flow between now and 2023 to pay its maturities. Will VRX be in a better positon in the coming years to once again extend the maturities or perhaps reduce debt via an equity offering or asset sales? Maybe. However, we believe risks such as the patent challenge to Xifaxan, potential legal liabilities, and the potential difficulty in executing sizable attractive divestitures could mean that the refinancing picture looks worse in three years."
This is the first time we see a company, which made significant improvements and potentially beats consensus receives a price target cut. In a turnaround situation, one can remain skeptical until more positive developments are made. However, after the management team delivered their guidance and made fundamental improvements, one should have more confidence about the company's ability to clear additional hurdles in the future. Price target should be lifted, not cut! This analyst was making claims against the data he presented! The logic behind lowering price target by 30% as a result of positive fundamental developments is seriously flawed.
Anyway, we appreciate his data point as a validation of the company's turnaround efforts, regardless of his flawed analysis.
3. Predict the future
How should one predict a company's future? It should be mainly based on the management team's historical track records and the delivery of projections they made.
3.1. Management's track records
We'd like to reiterate that Valeant's new management has solid track records. Here are some examples:
Figure 2. Papa's last 4-year performance as Perrigo' CEO
Figure 3. Herendeen's performance as Zoetis' CFO
(Note: The miss was mainly due to impairment/revaluation charges of $0.16 EPS (non-cash))
Figure 4. Stock performance during Papa's CEO tenure at Perrigo
It appeared to us that Papa and Herendeen are capable executives. After joining Valeant, they laid out a clear blueprint: Stabilize in 2016, Turnaround in 2017-2018 and Transform in 2018+. And they executed this plan step by step.
Figure 5. Valeant's positive development before 2016Q4. (Source: company presentation)
The new management also tries to guide investors conservatively. This idea is supported by Herendeen's repeated communications in earning calls:
"We think of guidance as a commitment."
Our points resonate with some great minds in the markets, e.g. Bill Miller:
"He (Herendeen) is logical and rational and understands how to create value. He said when hired that he viewed guidance as a 'commitment.' We took that to mean guidance would likely be quite conservative. "
We choose to give more credits to the new management, instead of those "know-it-all" outsiders.
3.2. Papa's due diligence on Valeant
It also intrigued us that why Papa joined Valeant. Why was a well-respected CEO willing to join a notorious company, giving up stable income and golden parachute, in exchange for mostly stock-based compensation? We thought we found the answer from Papa's CNBC interview, where Papa said:
"I've been in pharmaceutical industry for 35 years… What I always try to do is going to the data… I did my diligence. I look at Valeant not just from the level of noise - They have great brands, global, and what really surprised me is their pipelines."
We believe that Papa has seen much more than outsiders. And the facts he found are worth the bet of his entire career and reputation.
Again, Papa and Herendeen demonstrated their confidence in Valeant using their own money. Papa has purchased $5 million Valeant shares when he joined Valeant and Herendeen purchased $257K in March of 2017.
As mentioned above, even the bashing sell-side analysts are forced to acknowledge the recent improvements the new management has made. We are progressively getting more confidence about Valeant's future. Positive price action is likely to happen in the near future.
4. Unfairness in the game
Again, investing is a probability game. Everyone make mistakes. Black swan events make our projections even worse. We, Papa, Herendeen, Bill Miller, ValueAct, and all the new management might have made the wrong bet.
That's fine. We make mistakes, and we eat up the results. This is fair. However, we disagree with the unfairness in market manipulations.
4.1. Exploiting retail investors
Institutional investors only account for 44% of Valeant's outstanding shares. Typical retail investors are short of extensive financial tools, reliable information channels and sufficient time to dig into details. Most of them do not have access to brokerage reports in a timely fashion. When a new report is published by so-called "experts", they can only see the headlines from media platforms. Especially when we found out that some of those most broadcasted "experts" might be biased, we are concerned. Per our understanding, many of Valeant's positive developments have been negatively spun, on purpose.
4.2. Impact on algorithm trading
In this digital age, negative news influences people, as well as computers. For example, one can find a sentiment score attached to every piece of financial news. Positive news has plus signs, and vice versa.
Many algorithm trading firms use sentiment scores and key words in news articles to generate trading signals. These methods are based on title, key words and basic logic with no regards to truthfulness or originality. This limitation creates huge opportunity for manipulators to use recycled old news and intentionally tweaked bad news across different media platforms to profit from computer-generated sell orders. And sometimes it even triggers momentum trading signal, when the stock is on a downward spiral.
Fortunately, SEC has already brought action against 27 individuals and firms who seemly independent and unbiased but secretly compensated by touting company stocks. We believe SEC will discover more similar behaviors and improve the fairness in the market.
Conclusion
Valeant's extremely low valuation has provided enough margin of safety for rational investors. Manipulators' negative spins have made the stock a loaded spring. Even the bashing analysts were forced to acknowledge positive developments, regardless of their flawed analysis. We are starting to see the light at the end of the tunnel.
Disclosure: I am/we are long VRX.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Valeant’s Siliq price undercuts rivals to offset black box warning
https://pharmaphorum.com/news/valeant-undercuts-rivals-price… A Physician Analyzes Valeant's Siliq, As The Stock Crashes
https://seekingalpha.com/article/4064567-physician-analyzes-…
Orexigen Therapeutics (OREX) Says Valeant Pharmaceuticals' (VRX) Affiliate Filed for Marketing Approval for Obesity Drug Contrave in Canada
http://crweworld.com/article/markets/70062/orexigen-therapeu…
http://crweworld.com/article/markets/70062/orexigen-therapeu…
Trading Spotlight
Valeant: The Math Doesn't Add Up
https://seekingalpha.com/article/4064923-valeant-math-addSeeking alpha probiert es noch mal mit Drücken durch alte Zahlen von 2016.
Natürlich sind da noch nicht die Verkäufe von Firmenteilen aus dem Januar mit drin.
Valeant Pharmaceuticals Is An Asset Play And Any Growth Is A Margin Of Safety
https://seekingalpha.com/article/4064690-valeant-pharmaceuti…
Will Low Pricing for Siliq Be Enough to Help Valeant Turn Things Around?
http://host.madison.com/business/investment/markets-and-stoc… Disney Execs Escape Lawsuit Over Valeant Stock in 401(k)
https://www.bna.com/disney-execs-escape-n57982087072/
Antwort auf Beitrag Nr.: 54.802.993 von marty44 am 25.04.17 19:35:58die shorti bekommen langsam kalte füsse hoffentlich..das gute heute am Kurs ,dass nur 12Mio Aktien gehandelt worden sind und der Kurs steigt fast 5%
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