Valeant Pharmaceuticals Intl Inc (NYSE: VRX)
Valeant Pharmaceuticals has been an interesting stock to watch over the past year, to say the least. Of course, we know about the Philidor scandal, and many factors that have come since. However, the line between bullish and bearish is still relatively gray on the stock. Today, we’ll talk about the bearish argument, the bullish argument, and what I’m expecting to see from VRX ahead.
Trade smarter and make more money with Tradespoon!
The Bearish Argument On VRX
As we know, Valeant Pharmaceuticals is still dealing with the backlash associated with the Philidor scandal. Those on both sides do believe that there are going to be legal issues as a result of the scandal. After all, we know that the company was in the wrong and that it ended up costing investors money. This is likely to lead to a suit.
While the bulls on the stock are looking past the suit, the bears believe that the bulls are underestimating the implications of legal action. In fact, one of the most notable bears on the stock is Wells Fargo Analyst David Maris. In a recent statement, he made it clear that he is concerned about the lawsuits to come. Here’s what Maris had to offer:
“We believe as we enter 2017, investors may be more concerned than they are now about a potential negative outcome of this trial. We would expect investor concern to eventually focus on potential selling pressure given a negative outcome as well as what might happen to Valeant’s balance sheet if they lose. According to FactSet, Pershing Square owns 21.6 million shares of VRX.
While many see lawsuits as small one-time costs of doing business, we often ask about the worst case scenario. With this case and other class action suits, we wonder whether investors understand that the stakes might not be in the tens of millions, but much larger. According to the Wall Street Journal, T. Rowe Price’s stake was worth more than $4.5 billion at its peak…”
The Bullish Argument
While the bearish argument on VRX is clearly valid, the bullish argument is also a great one. The bulls agree that lawsuits are going to be an issue. However, they are not quite as concerned about it as the bears are. When it comes to the legal implications of the scandal, the company has some time to prepare. Also, most bulls aren’t expecting a small settlement. So, I have to disagree with the idea that the bulls are underestimating the issue. What they seem to be doing is balancing the doomsday theories with positives and coming up with a conclusion that the company will survive, therefore, the stock will thrive.
At the end of the day, the bears argue that Valeant Pharmaceuticals is an incredible company with a massive amount of assets. They also argue that with continued innovation in the medical space, the company will have the ammunition it needs in order to battle its way back to the top in the long run. In fact, a recent post on Seeking Alpha did a great job of outlining just how big Vesneo and Brodalumab could be for the company. To read the article, click here. At the end of the day, we know the history of VRX. We know that the company can be great with the right management. While lawsuits are nothing to laugh about, the positives far outweigh the negatives for the bulls.
Don’t waste your time! Click here to find winning trades in minutes!
What I’m Expecting To See
The truth is that the battle is nowhere near over. At the end of the day, Valeant Pharmaceuticals has a long, uphill battle to fight, and it’s not going to be easy. However, in this case, I have to side with the bulls. While legal backlash from the scandal is going to hurt, and hurt bad, the company is still massive and will likely survive the hit. With proven skills in innovation, bringing products to market successfully, and more, the company will grow as long as it survives. At the end of the day, VRX may not be in a great short-term position, but in the long run, the stock looks beautiful to me!
What Do You Think?
[Image Courtesy of Wikipedia]