Valeant Pharmaceuticals Inc. (NYSE: VRX) has grown a knack to remain in the news as of late as the company has been in the spotlight since its falling out with Philidor. Subsequently, the company decided to restate earnings and delayed the 10-k filings (financial reports) for the current quarter on account of such. The US SEC has launched an investigation into the matter and that has created an air of mystery around the stock, which explains the downward trend for the stock on Monday.
Alex Arfaei, analyst at BMO capital went ahead and gave possible valuation of the stock, however, maintained a higher level of granularity regarding details owing to the lack of invisibility. Valeant’s financial reporting credibility will likely be tarnished in the process. The investigation is likely regarding the company’s relations with specialty pharmacies such as Philidor and the delay in 10-k filings; however, any speculations would be jumping the gun as the scope of investigation is not yet made public.
The revenue from specialty pharmacies including Philidor amounted to 7% of total revenue in 3QFY15, and accounts for 13-19% earnings in the recent quarters in a given estimate. A financial penalty might well be in order for VRX on the basis of incomplete disclosures regarding specialty pharmacies.
BMO capital believes that the operating cash flows of the company will be sufficient to cover the debt as the mature along with any legal penalties that might be incurred. The Perform rating for the stock was maintained as the analyst estimated a potential financial liability between $500 million to $1.25 billion. The stock price was valuated from $114 to $144.
Deutsche Bank has suspended coverage of VRX ticker on the basis of fluctuations and uncertainties. Analyst Gregg Gilbert, remained skeptical of the company’s business model and policies, however, noted an improvement in the risk reward profile of the company. Deutsche bank had a Hold rating on the stock prior to the suspension of coverage.
The analyst opinion on the stock has five Strong Buys, eight Buys, eight Holds and one Underperform. The ratings are subject to change drastically over the coming days as the SEC investigation progresses. The stock is currently trading at $65.61 on fears of heavy penalties that may be incurred.