Valeant Has 42% Downside And Too Many Questions, Wells Fargo Warns

Wells Fargo’s David Maris initiated coverage of Valeant Pharmaceuticals Intl Inc VRX with an Underperform rating and a valuation range of $65-$68. He mentioned that the valuation range implies a potential downside of 42 percent from the current share price.

Analyst David Maris believes that Valeant’s board and management had taken decisions that could potentially put the company at significant business and reputational risk. He added that although Valeant’s management team is seen as having created significant value, the company had lost about $60 billion of market value from its peak, while its current market value is approximately $30 billion.

“Overall, we believe that Valeant’s self-proclaimed “new business model” for pharma has been reliant upon low-cost debt for deals, cost-cutting for acquired companies, price increases, and based on recent press reports, specialty pharmacy practices that are now under scrutiny,” Maris wrote.

Valeant’s growth could be negatively impacted by the recent scrutiny of its practices. The analyst expressed concern regarding whether Valeant would be able to adapt to the new environment, while adding, “with too many unanswered questions, we believe investors are better off deploying capital elsewhere.”

In the report, Wells Fargo noted, “We believe Valeant shares currently carry a significant amount of risk and uncertainty. This concern arises from our lack of clarity on a number of key issues, including accounting, rapidly expanding gross-to-net ratios, balance sheet leverage, business outlook, and the recent Walgreen deal.”