Concordia International Corp (CXR.TO)

This was ridiculously overpriced at over $100. Now it is half that, but he is not sure that it is dirt cheap. Their debt load is a little bit scary, because they don’t have the steady stream of cash flow. He would be cautious on this.

Chart shows a nice long upward trend, but broke down through the trend line later this year. It formed a bottom just south of $30 followed by a huge upward move in a short time frame. He would prefer using a basket of Canadian healthcare stocks. If he were adding to this name, it would have to come back a little and form some kind of base.

It is not VRX-T. They are now only 40% US. Probably 40-75% of their growth will be organic. They have a leveraged balance sheet from their acquisition. They are going to pay debt back and grow organically. He thinks it is still quite undervalued.

They have a fair bit of debt and it represents a little over 5 times next year’s earnings. They took on this debt because they knew it would be transformational for the company. They have been painted with the VRX-T brush. He trimmed and then recently added back. It built a base and is now starting to move up.

They have too much debt. They did not issue enough equity. Wait until you get clarity on whether they are going to issue stock from treasury. What happens if their old strategy of raising prices gets stopped by government?

The fall was completely blown out of proportion. The timing of the AMCo acquisition was very unfortunate. Looking out 12 months from now, this is a company that can conservatively earn $7 a share, and it is trading at $40. They have a lot of debt on the balance sheet, but they could pay that off with free cash flow that they generate. Over time, as the headlines fall off, we will see that creation in value. Dividend yield of 1.01%.

He sold a number of months ago at a profit. The issue is headwinds over pricing. It is not clear how it will play out. The second issue is the leverage on the balance sheet.

A humdinger of a meltdown. You are seeing lower lows and lower highs and no break out from any kind of a consolidation. It is still in a bearish phase.

This growth by acquisition business model is now being questioned. Where you could issue paper, you could borrow as long as the share price goes up. When you start losing multiple, your ability to use paper falls. Because of this they can’t do the degree of takeovers that they could. He thinks it has a better chance to let the fundamentals dictate, something like a Valeant (VRX-T).

When he sees a stock down 60%-70%, he has to have a look at it. He did and realized that it was obviously getting swept up in the Valiant vortex of worry of fraud, etc. The timing of their acquisition was obviously not that good, but the deal was financed. The equity financing and debt financing is going to give them a broader product portfolio. They are not dependent on any price increases. Basically trading at 5 to 6 times next year’s earnings on a pro forma basis. Debt levels are high right now but they will be generating a lot of free cash flow. Dividend yield of 1.05%.

Has been dragged down by the happenings with Valiant (VRX-T). When you look at what they are going to do in terms of EBITDA, the stock is very, very cheap here. EBITDA is somewhere in the 7.5X-8X range. Not very expensive. Thinks it has been mistreated.

At the moment there is no sense of any disturbance. Recently made a large acquisition. There is a lot of debt, but they believe confidently of paying down the debt. They believe in maintaining a high debt level because that is their model and they continue to acquire and use their tax advantage system. It is all going to take time.

A lot has happened to the balance sheet since Mar 31^st of this year (year end). His concern is that it is trading under the EBV +5 line. It means they crushed the valuation. It will not be getting the valuation it needs in order to make acquisitions at a reasonable price. This one is worst than VRX-T. He does not know if they will survive.

(A Top Pick Oct 22/14. Down 22.28%.) Has pretty much had everything go wrong that could go wrong on their last deal. It has significantly diversified their company from being very US focused. Now the US is only 30% of their business. Everyone is concerned that they are in the same area as Valeant (VRX-T) regarding the increasing of their pricing, but only 8% of their pricing is Medicare and only 17% of their drugs are bought by the US government. CEO thinks it could do a few more acquisitions this year just on their cash flow.

This got way, way over what he considers their FMV. It was essentially running on momentum. When momentum runs out, the stock just plummets. You have to wait for the bad news to wash through. The US Congress is really ticked off at these drug companies for buying drugs and then ramping prices up. Let it find its footing in order to start to get out of this morass.