You might say that the Valeant Pharmaceuticals Intl Inc (VRX) stock price has been on a bit of a roller coaster recently. Unfortunately for investors, that roller coaster has had one trajectory: down. Valeant shares have lost 79% of their value in the last six months alone and VRX stock was down 90% from its peak at recent lows.
But things are finally looking up for the specialty pharmaceuticals company. Way up.
After closing at $26.11 on Monday, shares ripped off 10% gains on Tuesday, rallied another 18.9% on Wednesday, and are up about 4% as I write this. All told, VRX stock has rallied 36% in less than three days.
Call me crazy, but I think Valeant stock has room to keep surging higher, driven by three recent catalysts.
VRX Completes Philidor Review
Remember, the thing that sparked this whole ride to begin with was a note by short-seller Citron Research that claimed Valeant was the pharmaceutical Enron, and that the company was using a pharmacy called Philidor to boost revenue through fake invoices.
Those concerns led to negative media portrayals, pressure from Capitol Hill, the delaying of Valeant’s annual report and the eventual ouster of the CEO. Things climaxed when Valeant said last month it might default on its debt obligations, causing VRX stock to plunge 51% in a single day.
Well, the Philidor headache appears to be over for now. On Tuesday, the company said a board committee had completed its accounting review and had no more changes to make. VRX stock jumped on the news, which essentially tells the market: “We don’t have any further accounting improprieties to tell you about.”
Better yet, VRX announced it was finally set to release its oft-delayed 2015 annual report by April 29 or sooner.
New CEO Coming, Debt Renegotiated for Valeant Stock
On Wednesday, more good news: Bill Ackman, the famous manager of the hedge fund Pershing Square Capital, said that the search for a new CEO to replace the outgoing Michael Pearson will take weeks, not months. This should undoubtedly be positive for VRX stock, since Pearson had lost the confidence of the markets.
Market confidence plays a bigger role than you might think with VRX stock, given all the uncertainty surrounding its future, and it’s nice to see Ackman, who just became a board member himself last month, calling some shots and moving the company forward.
It’s also nice that Ackman has a very, very large personal interest in seeing VRX stock rise, as one of its biggest shareholders.
The third reason Valeant stock finally looks worthy of investment is news that it has reached revised agreements with creditors. The specter of default had been hanging over Valeant’s head ever since Pearson said the company could default on its $30 billion in debt due to covenants regarding the timely release of its financial results.
But late Wednesday, Valeant struck a deal with its lenders to amend that language and give VRX more time, avoiding a technical default on its debt, which would have been very bad.
All in all, this has been a great week for VRX stock, and for Valeant itself, especially considering everything that’s happened since last fall. As InvestorPlace Feature Writer James Brumley pointed out in a piece yesterday, the short-term technicals are looking pretty bullish.
Essentially, the buyers are back.
At last check, there were 11.55 million shares of Valeant still being shorted. I imagine that number is falling now that VRX stock appears to be bouncing off what should end up being 52-week lows.
Valeant is by no means a stock without risk. But I really like the risk-reward on VRX stock right now.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
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