5 Takeaways For Valeant Investors As Ackman Exits

Valeant Pharmaceuticals Intl Inc VRX fell to a new 52-week low of $10.50 after Bill Ackman sold his stake.

Pershing Square, the activist investor's firm, exited its 27.2 million share position at $11. Ackman will also step off the company's board.

David Maris of Wells Fargo reiterated his Underperform rating on the stock and the $11 sale price comes within his valuation range of $10-$13. Investors might consider Ackman’s exit as a sign Valeant may not see a major turnaround in the next several years.

“[W]e see this as a vote of no confidence for the stock and that things are continuing to go from bad to worse for Valeant,” Maris wrote in a note.

Maris said investors will take Pershing Square’s exit as a reflection that:

• “The outlook is negative”
• “The potential for meaningful near-term asset sales is unlikely”
• “The legal proceedings/investigations may have greater risk than the Street is appreciating”
• “A turnaround will take longer than expected or is not possible”
• “The debt holders have an advantaged position in the capital structure, and as such the equity holders are at their mercy, especially in a bankruptcy situation.”

The analyst pointed out Valeant is in a challenging situation as it's set to launch an expensive-to-market drug into a crowded market with a worse-than-peers safety profile and weak core product trends.

The company is also burdened with several investigations and lawsuits and more than $29 billion of debt and obligations.

“We believe Valeant shares currently carry too much risk for us to be comfortable recommending them as an investment,” Maris added.

Related:

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Pershing Square's Valeant Sale Sends 'Untimely Poor Signal'