Valeant Pharmaceuticals (VRX.TO)

They have to transition themselves into a kind of PFE-N rather than what it has been doing. It is in a bit of a struggle.

A very unusual situation. Normally when companies want to be sold, they are usually quiet about it and there is not a lot of information. The process usually proceeds quietly until something happens, or it doesn’t. Don’t read too much into any of the rumours. He would tend to avoid this because of the balance sheet leverage. Has a very significant amount of financial leverage.

The company came out with the non-gap earnings today, and the earnings were lower than anticipated. We still don’t know what the earnings are going to look like a quarter from now. There are so many moving parts in this company, and he would stay away. Debt to cash flow should be no more than 2X, and this one is that 15X. (See Top Picks.)

A couple of debt holders keep filing notice of default, because they haven’t filed their 10-Qs. Thinks that will happen, so is not necessarily a concern. He has a small Short on this. The business model appears to be broken in terms of using an overvalued share price to Buy assets with debt.

(Market Call Minute.) Down 90% and a free cash flow generator, and can earn more than its free cash flow and everyone hates it.

Absolutely hated this at $300. The multiple is now a lot better. He is a little worried about the financials, they have a lot of debt. Have some good products and they are bringing in good people. If you are a real risk taker, you could have some interest in this, but it is very risky.

The great thing about this stock is that it has lots of volatility. If you have the stomach for Shorting it, he doesn’t think that there will be events for any steady happy ending for this company. The US political class have decided they need a poster child for bad behaviour in the drug business. Drug prices are high and new drugs are coming on the market at very high prices.

He does not like it. It grew by debt funded acquisition. These stories don’t usually work out well. They are now a dramatically different company as they have to cut prices on drugs they acquired. They now have to sell assets to pay down debt. The worst is not over for them. No value there.

He doesn’t do seasonality on this stock. Technically the charts are not looking too good. It is in a downward trend, has been underperforming the market, and its momentum indicators are on the downside. The only hope is that the stock might be trying to bottom out at these levels, but you don’t want to own the stock because it is bottoming out.

He has recently stepped back onto the buy side. There is growth in the core products. They are going to kick off a lot of free cash flow to use to pay down debt. The debt holders seem to be on side. It will be a rollercoaster, however.

A momentum indicator indicates it is going down, down, down. There is an indication that the stock is heading lower. Sellers have been extremely aggressive. They really want to sell in a hurry.

It is very unclear what their assets are worth. Have a lot of debt which they have to bring down. Selling non-core assets might not be able to do that for them. They don’t develop any pharmaceuticals whatsoever. They buy companies whose drugs they think are interesting, and then jack up the price of those drugs. That model is totally gone for them.

This is not a long term investment. It is more of a gamble. There is so much uncertainty. Huge debt, management in transition, congress going after them. He does not feel they are an investible asset.

Just too many moving parts here. They filed their annual report today, just in time for the deadline to avoid default. This is a company under bombardment on too many fronts.

Very controversial name, and one he doesn’t like. The poster boy for over leveraging their balance sheet. It is going to take a long, long time for them to deleverage it. Most of the value is in the debt holders’ hands. The bonds would be a better place to invest.