Concordia International Corp (CXR.TO)

The curse of Valiant has struck this one. They made some acquisitions that grew the company aggressively, but it also grew the debt. When they prove the value of their acquisition in a couple of quarters the stock should go up.

Took on roughly 7 turns of debt, i.e. 7X their annual EBITDA, to make their most recent acquisition. They are also seeing some problems in the US where they raised the price of their largest drug Donatel to something like 500%. That is likely to come under political pressure. Had been Short this, but it is getting to a level where it is more of a “stay away”.

A company that is an enigma surrounded by a riddle. Fundamentally it looks attractive and you could be a buyer. These rollup and acquisition type vehicles are under a lot of pressure. Healthcare is a whipping boy of the political class currently. They have all been taking it on the chin. Even though valuations are attractive and fundamentals look good, he gets very nervous when there are rumours swirling around a company that may have issues with its structured accounting.

This is the mud patch and they are getting mud on them. They raise the price on products 10% a year. They are levered to the nines. He does not know if it is as bad as a VRX-T. The valuations are still quite high on these companies. Are they REAL valuations? He would prefer this one because it is getting more of a beating.

Has been painted by the same brush as Valeant (VRX-T) even though they don’t have the same business model. It is down 10% today and it didn’t do anything wrong. They are mostly in Europe, however, it is somehow viewed as a mini Valeant. It should really be a place for Valeant money to go to. Every quarter that they are able to demonstrate their model, he thinks the valuation goes up and the earnings are going to go up. There is probably even a short-term trade in this.

In Oct/Nov, healthcare came under pressure and really hasn’t stopped. Looking at the spectrum of healthcare companies, including pharmaceutical or biotech, and in many cases managed healthcare, money seems to be leaving in favour of other sectors. An area he would be careful of. The companies that have been building through acquisition are under pressure, and this is a good example. Prefers healthcare devices such as iShares U.S. Medical Devices (IHI-N).

A tough one because a lot of people don’t understand what happened to this company. It was trading at about $115, and all of a sudden here we are at $42. The company did an acquisition that was too big for its balance sheet. They substantially grew the balance sheet relative to the earnings they are taking in. Now they have to work their way out of this big acquisition. There is a lot of goodwill on the balance sheet. Has a model price of $90, but if you are bullish on the stock, the best he can give you is $51.

This is trading on 4X earnings and less than its projected 2016 BV. Stocks are never that cheap unless they don’t have an issue. This does have an issue, too much debt. Management has been appearing at conferences explaining they have made progress in paying down debt. Jason thinks that over 2016, as they pay down debt each quarter, the stock will be able to go through a fairly significant re-rating. Institutions are going to have to take a look at this. A lot of money is going to come back into this name as the debt decreases. If they can pay down their debt, then somebody will buy them out.

The upside potential is huge and the balance sheet is pretty good. It meets all his criteria for an interesting investment. But he does not know to what extent it is a VRX-T in disguise (see today’s option on VRX-T) so he is not interested.

A roller coaster stock. There are a lot of political headline risk concerns where people are saying US politics are going to start hurting the healthcare sector, but this company is only 40% in the US, the rest is international. They have 60 products and no single product is above 10% of total revenue. This is priced like they are going out of business. Priced below BV right now and 6X next year’s earnings. Generating cash flows. Have a lot of debt, so there is risk there but the company knows it and have stated their debt repayment schedule, and are already repaying that.

We will continue hearing about health stocks because this is an election year in the US. This one had a big drop in 2015 to below $30. Since then it has gone up closer to $60, but has dropped down again to just above $30. From a technical perspective, it is now at the support level and might make it back up to the highs of around $39-$40. Seasonally, he would not be investing at this time of year. If this breaks below $30, there is no support for it, and you may want to sell your holdings.

A rollup strategy that went bad. There have been so many pieces of negative news that have gone out on the pharmaceutical world, that they are missing the point of why this company made their last acquisition. It allowed them to dodge a bullet by getting out of North America and becoming more global. Trading at 4X earnings is basically saying that the company is going out of business, but next year they are going to generate $500 million in free cash flow, and will be able to de-lever pretty quickly. This is a business that can support a high debt load. Dividend yield of 1.09%.

(Top Pick Mar 24/15, Down 54%) They were doing a history-defying acquisition. They are run by extremely competent people. People need to see results and that they can pay down the debt from cash flows. He remains a promoter.

For a 3-10 year hold? For that length of time, it would probably be a very good name to hold. It is universally liked. All these healthcare names have been hurt by the bashing of the pharmaceutical industry in general. But if you’re time horizon is longer than a year or 2, then you are fine.

Has been a serial acquirer in the past and did a very large acquisition in Sept/Oct last year. Have about 190 drugs in their portfolio, so doesn’t have a drug specific risk, which he likes. If they stopped acquiring, he would be a lot more interested. If not, he is not too interested. Be cautious.