(01-11-2015, 02:18 PM)HitandRun Wrote: [ -> ]Wah... GFG san
Looks like you are mighty confident in VRX or Ackman.
Personally, I have no idea on the actual value of VRX and that's why I am not vested. Since Philidor is shutting down, I guess it can't be good => One smoking gun
Would you mind sharing your model on VRX's valuation? Thanks.
I valued it based on earnings, it's not much different from what's already said on Ackman's presentation except that I'm less optimistic than him. I'm not expecting it to go up to $400+ by 2019. His earnings projections and valuations can be found easily by googling.
That forms the base for my quantitative analysis. Of course, this is based on 2 assumptions:
1) no more other hidden bombs, fraud etc
2) philidor really accounts for only 6.8% of revenue (as of mrq)
But just by looking at the earnings base, the projected earnings, and comparing the valuation to similar competitors... I can get valeant now at under PER 7 or 8. Most other competitors are >15.
Investing is all about weighing the pro v cons. If it's all good news, or no bad news at least, you can get valeant at this price. So the question now is not how terrible valeant is...(all the terrible news are out). The question is really whether there are more bad news that the markets don't already know.
Now a simple qualitative analysis :
-ve:
Valeant's revenue and earnings will get impacted by cutting away philidor
(As mentioned, it's 6.8% of REVENUE. Not even earnings. And it won't even be that much cos they can just switch to other means of distributorships. It's really quite negligible.
I also noted several other big pharma uses philidor as well and all have cut ties)
Regulators are examining valeant not just based on Philidor but on the price increases
(Here I do think valeant cannot escape. There's too much negative press and politicians are just dying to milk the publicity and be seen as champions of the small guy. They will likely get some fine EVEN though they did nothing illegal. Many grey areas can get them into trouble though. The fine will be manageable, and in any case it'll take several months if not years before investigations are complete)
Supposedly "broken model" of acquisitions
( this is actually more +ve. I think valeant will now focus on reducing debt and with the strong cash flow, and now that they are slowing or stopping acquisitions... How can that be a bad thing in the long run. Yet the market thinks valeant a screwed cos they're going to reduce debt lead acquisitions? And when they did that, the same experts were criticizing that it's unsustainable? )
+ve:
Very strong product lines. I am in the healthcare sector and understand their products. Most are "branded" products where they may be generics, but given a choice, pats would still prefer the brand name originals. For eg.Bausch face care products. (Esp when your insurer pays for it....)
The price now (<$100) is reflecting all these negatives: regulatory spotlight on pricing, change of business model, philidor, And a large part... Left's potentially damaging report due Monday.
Left's report if u read it... Is a total joke. It's amateurish and I really wonder why he can move prices just by releasing such a report. It looks like something I can do too. His core thesis is valeant is faking revenue numbers through philidor and his evidence is to show they use the same phone numbers, and the CEO talks in a similar manner to enron's CEO then etc. no hard evidence.
In fact, after valeant asked SEC to investigate him, he started going on the defensive by saying he's just warning of a "potential fire in the cinema". There's just no hard evidence and now he has to try to divert attention from his earlier allegations of fraud (faking revenue)
Past history of big pharma companies getting into trouble, surviving AND doing well. Novartis is a big culprit. Essential qn is, will valeant still be around in 3,4,5 yrs from now?
When this dies down, they can easily divest any part of their portfolio of drugs that's deemed problematic.
The sharp and rapid fall of the price is actually one of the +ves for me. I think the downside risks from here are minimal, while the potential upside risks are great. I do admit that it's likely going to be a rollercoster ride... At 1 point valeant fell 40% in a single day!
Thus far the greatest returns I have gotten are always from situations like this.... When it looks bleak, bad news are coming out all the time, everyone suddenly swings to the negative side. Examples are BP oil spill and TEPCO after the radiation leak from Japan earthquake.
In fact I was monitoring VOM (Volkswagen) closely but it didn't fall sufficiently for me to start a position. (Also don't know too much about the auto industry as well)
Oh. And the last point is my average price is much much lower than Ackman's $186.
Closer to the $110 mark so if $186 gives the mighty Ackman comfort, it sure as hell works out for me. I'm expecting a 100% return within 3 yrs. ($220)