Valeant Pharmaceuticals Intl Inc (VRX) Stock Is STILL Too Ugly to Buy

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VRX stock - Valeant Pharmaceuticals Intl Inc (VRX) Stock Is STILL Too Ugly to Buy

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There’s no doubt that Valeant Pharmaceuticals Intl Inc (NYSE:VRX) has made some progress so far this year. Although, VRX stock does not reflect this progress completely — it’s down about 2.3% year-to-date — the company has at least changed the narrative.

Valeant Pharmaceuticals Intl Inc (VRX) Stock Is STILL Too Ugly to Buy

A series of asset sales and debt refinancings have pushed significant debt maturities out to 2020. Bankruptcy risk seemed material for Valeant stock as recently as earlier this year.

Under CEO Joe Papa, however, VRX stock has at least has bought itself some time.

It’s progress. But even with Valeant stock having pulled back ~25% from late July levels, it simply doesn’t look like enough.

VRX stock is still valued at nearly $5 billion and there’s still some $28 billion in debt on the balance sheet, nearly $6 billion of which comes due in 2020.

Buying time isn’t enough, even with Valeant stock having pulled back. And the problem for the stock is that I’m still skeptical the company can do much more than that.

VRX Stock: Legal Problems Remain

Even without potential legal problems, Valeant stock would be a risky play. The company’s debt load is over seven times its adjusted EBITDA, in a space where entire businesses aren’t valued at much more than that. A decline in profits, which could come from lower pricing, generic competition for VRX’s branded drugs, or lost profits from sold assets, would bring its solvency into question.

Furthermore, Valeant is still facing potential litigation — and possibly, charges — related to its relationship with Philidor Rx Services. And now, a major mutual fund company has filed a securities fraud lawsuit against the company.

This isn’t one of the all-too-many class-action suits filed against seemingly every company whose stock goes down. The complainant, Lord Abbett & Co., is a respected fund manager. It’s seeking damages of some $80 billion — with a ‘b’.

Obviously, Lord Abbett isn’t going to get $80 billion; Valeant doesn’t have $80 billion to spare. But with the company on the razor’s edge of satisfying debt covenants over the next couple of the years, it simply cannot afford a material judgment — or settlement.

It’s unlikely that the Lord Abbett suit, or federal charges, will themselves bring Valeant down, and send Valeant stock to zero. But there is a risk here — if only because Valeant still has so little room for error.

Can Valeant Grow?

Essentially, Valeant needs to grow its way out of its current mess. And that seems a very difficult proposition. Drugmakers as a whole are struggling. Generic rival Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) has seen its stock collapse. An earnings beat from Perrigo Company plc Ordinary Shares (NYSE:PRGO) gave the sector a brief respite, but the declines have continued since.

And there’s just not enough in what’s left of Valeant to suggest any real growth. Management, on the Q2 earnings call, pointed out that 73% of revenue came from Bausch + Lomb and the Salix business. But B+L is in fourth place in contact lenses. There’s already a great business to buy in that space: Cooper Companies Inc (NYSE:COO), whose earnings are growing double-digits as it takes share from B+L and industry leader Johnson & Johnson (NYSE:JNJ). And Salix’s Xifaxan will face generic competition from Teva’s Actavis unit in 2019.

Something like flat profit maybe allows Valeant to kick the can down the road for a few more years — maybe even longer. But that’s not enough to drive VRX stock higher or make it anything other than “dead money”. And the problem with the stock is that increasingly looks like a best-case scenario, even below $14.

Bottom Line on VRX

At the end of the day, even with VRX stock having pulled back, there just isn’t a compelling bull case here. What’s left of Valeant simply isn’t a good business. B+L is second-tier in its space. None of its drugs are anything like the flagship products at rivals.

It does look like Valeant stock will make it to 2020 at least, and likely beyond. But, as I’ve written before, that’s not a bull case.

It’s near impossible to make a solid bull case for VRX stock – at almost any price.

As of this writing, Vince Martin has no positions in any securities mentioned.

After spending time at a retail brokerage, Vince Martin has covered the financial industry for close to a decade for InvestorPlace.com and other outlets.


Article printed from InvestorPlace Media, https://investorplace.com/2017/09/valeant-pharmaceuticals-intl-inc-vrx-stock-too-ugly/.

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