VRX - Valens Credit Report - 2018 05 17
Credit markets are overstating VRX's credit risk with a CDS of 485bps and YTW of 7.111% relative to an Intrinsic CDS of 340bps and an Intrinsic YTW of 6.241%. Furthermore, Moody's is materially overstating VRX's fundamental credit risk, with their high-yield B3 credit rating seven notches lower than Valens' IG4 (Baa2) credit rating Incentives Dictate Behavior™ analysis highlights mostly positive signals for creditors. Management's compensation metrics should drive them to focus on all three value drivers: revenue growth, margins, and asset turnover, which should result in Uniform ROA improvement and higher cash flows available for servicing obligations. In addition, the ROTC metric should disincentivize them from overleveraging the balance sheet. Moreover, management members have low change-in-control compensation, limiting event risk for creditors Earnings Call Forensics™ of the firm's Q1 2018 earnings call (5/8) highlights that management generated an excitement marker when discussing the progress they have made in terms of SILIQ coverage VRX currently trades near the low end of historical valuations relative to UAFRS-based (Uniform) Earnings, with a 9.1x Uniform P/E. At these levels, the market is pricing in expectations for Uniform ROA to decline from 51% in 2017 to 27% through 2022, accompanied by 1% Uniform Asset shrinkage going forward. Multiples for VRX materially declined following allegations of fraud, as well as their late 10-K filing and subsequent restatement in 2016. If the allegations of fraud are found to be unwarranted, even with potential drug price legislation, or should the market recognize the firm's lower-than-expected credit risk, there could be material equity upside going forward
Valeant Pharmaceuticals International is a pharmaceutical and medical device company that develops, manufactures, and markets a range of branded, generic and branded generic pharmaceuticals, over-the-counter (OTC) products, and medical devices (contact lenses, intraocular lenses, ophthalmic surgical equipment, and aesthetics devices). Co. has two operating and reportable segments: Developed Markets, which focuses in dermatology, neurology, gastrointestinal disorders, and eye health therapeutic; and Emerging Markets, which focuses primarily on branded generics, OTC products, and medical devices.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.