Valeant Pharmaceuticals Intl Inc (NYSE: VRX)
Valeant Pharmaceuticals has had a tremendously hard time in the market over the past few months, and for good reason. Late last year, it was uncovered that the company was misleading investors, causing the stock to plummet. However, with the changes that the company has made since, I believe that, at this point, VRX is incredibly undervalued. Today, we’ll talk about how the company misled investors, what we’ve seen since, and why I believe that the stock will soar moving forward. So, let’s get right to it…
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How VRX Misled Investors
If you’ve been following Valeant Pharmaceuticals, chances are that you know quite a bit about the scandal. You see, the company had an agreement with a pharmacy known as Philidor, which turned out to be its biggest customer. At first glance, everything seemed to be on the up and up. However, last year, VRX came under fire with regard to pricing practices. As a result, the company was the subject of several investigations, one of which was coming from an analyst firm known as Citron.
Unfortunately for VRX and its investors, Citron uncovered something that no one would have expected. According to the data they found, Valeant Pharmaceuticals had been using its relationship with Philidor as a way to pad the numbers, making it seem as though they were doing better than they actually were. Of course, Citron published the data, leading to fear among investors!
What We’ve Seen Since
When information of a scandal like the one we saw between VRX and Philidor is released, it’s a big story, and one that forces action. In this particular case, we’ve seen plenty of action from Valeant Pharmaceuticals. In fact, the company has made several changes since the scandal.
The first change that was made was a cancellation of the agreement with Philidor. After all, it was this relationship that allowed VRX to mislead its investors, so investors pushed for a cancellation. This created a new problem though. The reality is that Philidor was Valeant’s biggest customer. So, when they canceled the agreement, sales of VRX branded products tanked. Nonetheless, the company came up with a solution to that issue as well. Shortly after announcing that it would be canceling its agreement with Philidor, the company announced that it had entered into an agreement with Walgreens, under which, Walgreens would sell their products. While this didn’t make up for declines in sales completely, it did offer a great start.
The other changes the company has made are associated with management. After all, when a scandal like this happens, the blame lies with the management. As a result, VRX has made a couple of big management changes. First and foremost, J. Michael Pearson resigned as the CEO of the company, leaving a highly respected member of the pharmaceutical industry, Joseph Papa, in his place. On top of that, VRX has also made a couple of big changes to their Board of Directors. One of the biggest was adding Bill Ackman to the board!
Why I Believe Valeant Pharmaceuticals Will Climb From Here
At this point, I can understand why investors are fearful. After all, when a company misleads its investors, it takes a while to regain investor trust. However, in this particular case, those who are shorting the stock are horribly mistaken. The reality is that from a fundamental standpoint, VRX has already recovered in a big way. The company has new, trusted management, they’ve signed with Walgreens, and they seem to have a clear plan for growth, moving forward! However, the stock continues to go in a negative direction. Nonetheless, over time, investors will realize that VRX is, indeed, a great company that has rebounded incredibly quickly. This will likely cause the price of the stock to skyrocket in the long run.
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What Do You Think?
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[Image Courtesy of Wikipedia]