Betting against Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is no longer a wise move. VRX stock short sellers are learning that the hard way these days.
Shares of the embattled drug company are surging almost 9% on Wednesday morning. That strength is coming on a recent vote of confidence by analysts at Morgan Stanley, which upgraded Valeant stock to “overweight” from “equal weight.” The firm increased its price target on VRX to $42 from $33, calling its upside view “attractive.”
“We expect management to successfully renegotiate debt covenants for a small amount (est. $60 million extra annual interest expense), improve operating income & cash flow, and pay down debt,” Morgan Stanley said in a note on VRX stock released Wednesday. “As the company delevers, this can drive significant equity value accretion.”
The Valeant upgrade follows another upgrade Monday by Mizuho, which pushed its view to “neutral” from “underperform.” Mizuho boosted its price target on VRX shares to $25 from $11, citing an “optimistic sum-of-the-parts” analysis.
If you’re keeping score at home, Valeant stock is now up almost 25% in one month, assuming premarket activity holds. Notably, the VRX upgrade comes even though reports suggest that the company is being investigated by federal regulators who are looking to determine whether Valeant defrauded insurers.
And here’s the thing: Mizuho downgraded VRX stock just last week. While citing its guidance miss, the firm said there is now a “lower likelihood of stock collapse.” So the recent upgrade, from a price target of $11, is a complete about-face from a strictly dark bear thesis.
Now Mizuho says its short thesis on the Canadian-based drug company “has been debunked.”
The Bottom Line on VRX Stock
Call it “smart financial engineering” if you want. Whatever the case may be, the short sellers of VRX stock have no place to hide these days. Thanks to the recent Valeant upgrade, there will be even more buying pressure of Valeant Pharmaceuticals, which will may send VRX stock even higher.
That should be much to the delight of billionaire Bill Ackman, who owns a sizable stake in the company.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
