- Credit markets are materially overstating VRX's credit risk with a CDS of 568bps and YTW of 8.235% relative to an Intrinsic CDS of 414bps and an Intrinsic YTW of 5.935%. Furthermore, Moody's is materially overstating the firm's fundamental credit risk with their highly speculative, high-yield Caa1 credit rating, five notches lower than Valens' HY1 (Ba2) rating - Incentives Dictate Behavior™ analysis highlights management has low change-in-control compensation, indicating that they are less likely to accept a buyout or pursue a sale, reducing event risk for creditors. Furthermore, compensation based on EBITDA, revenue, and ROTC should lead to improved growth, asset utilization, and margins, a positive for creditors
- Equity markets are pricing in expectations for a material Uniform ROA compression, with valuations relative to UAFRS-based (Uniform) Earnings at their lowest point since 2009. VRX shares have fallen materially amid concerns about the accuracy of VRX's financial statements and concerns about the pharmaceutical industry as a whole. As such, the firm is likely undervalued if they can just maintain profitability 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.
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