Shares of Valeant Pharmaceuticals continued their slump on Wednesday, slipping another 5.4% during the morning trading hours. The struggling stock is now down more than 30% on the year, and the pressure to turn things around is starting to pile on company management. Is a bounce-back imminent, or will Valeant continue its remarkable freefall?
Recent Struggles
For much of the past year and a half, Valeant has been in the spotlight thanks to several controversies, including a probe into its aggressive price hiking, as well as accusations of fraud and collusion with one of its distributors.
As of late, Valeant has picked up a new batch of issues that seem to be a major concern for investors. For example, the company was recently criticized after it filed an initial proxy form detailing executive compensation.
The filing revealed that Valeant CEO Joseph Papa—who took over after Michael Pearson, the former CEO that is now suing the company, left this summer—took home a total of $62.7 million in cash and stock last year.
Papa’s compensation package included a base salary of $980,000, a bonus worth about $9.1 million, and stock and options worth nearly $52 million. Investors considered Papa’s pay a bit overdone for a company that is struggling with slumping sales and earnings, but Valeant defended itself by saying this package was fitting for a lead role at a company of its size.
Valeant has also been looking to raise cash by shedding some of its assets, but this has proven to be challenging thus far. This week, The Australian reported that Valeant has been struggling to sell its Australian iNova subsidiary for a price that matched its own expectations.
According to the report, Valeant has received three final bids for iNova, each of which came in around $900 million. Valeant was apparently expecting offers of at least $1 billion.
The news that this subsidiary isn’t quite attracting big money offers comes just a few weeks after notable activist investor Bill Ackman announced that he’d sold the remainder of his stake in the company at an 81% loss.
With Ackman ditching Valeant, many investors have wondered if they should follow suit. On the other hand, some are suggesting that Valeant’s most recent dip presents a valuable buying opportunity.
The Numbers
Let’s start with Valeant’s inability to shed its assets at the right price, as this is an issue that could put pressure on the company’s books. As it began its asset sale, Valeant suggested that investors could expect about $8 billion worth of asset dumps, but so far the company has only raised about $2.1 billion.
Valeant’s $30 billion in debt is enough to turn away plenty of investors, but if its plan to reduce that debt burden continues to sputter, even more investors may ditch the stock.
Valeant is also looking at slumping sales and EPS figures. The Zacks Consensus Estimate for the company’s full-year earnings has seen three negative revisions in the past 30 days—contributing to a total of 8 negative revisions in the past 60 days—and our current estimate would reflect a year-over-year EPS decline of nearly 28%. Our current consensus revenue estimate would represent a sales decline of about 10%.
For Valeant’s current quarter, estimates have also been on a downward trend. Our Zacks Consensus Estimate for the period ended in March has shed six cents over the past 30 days.
Bottom Line
This negative earnings estimate revision trend has helped Valeant earn a Zacks Rank #5 (Strong Sell) ranking. While some may hope that this recent slump has moved the stock to its bottom, the available earnings-related data suggests continued challenges for the company. This could lead to even more volatility, which is enough to keep plenty of investors away.
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Valeant (VRX) Stock Continues to Slump: Should You Buy the Dip?
Shares of Valeant Pharmaceuticals continued their slump on Wednesday, slipping another 5.4% during the morning trading hours. The struggling stock is now down more than 30% on the year, and the pressure to turn things around is starting to pile on company management. Is a bounce-back imminent, or will Valeant continue its remarkable freefall?
Recent Struggles
For much of the past year and a half, Valeant has been in the spotlight thanks to several controversies, including a probe into its aggressive price hiking, as well as accusations of fraud and collusion with one of its distributors.
As of late, Valeant has picked up a new batch of issues that seem to be a major concern for investors. For example, the company was recently criticized after it filed an initial proxy form detailing executive compensation.
The filing revealed that Valeant CEO Joseph Papa—who took over after Michael Pearson, the former CEO that is now suing the company, left this summer—took home a total of $62.7 million in cash and stock last year.
Papa’s compensation package included a base salary of $980,000, a bonus worth about $9.1 million, and stock and options worth nearly $52 million. Investors considered Papa’s pay a bit overdone for a company that is struggling with slumping sales and earnings, but Valeant defended itself by saying this package was fitting for a lead role at a company of its size.
Valeant has also been looking to raise cash by shedding some of its assets, but this has proven to be challenging thus far. This week, The Australian reported that Valeant has been struggling to sell its Australian iNova subsidiary for a price that matched its own expectations.
According to the report, Valeant has received three final bids for iNova, each of which came in around $900 million. Valeant was apparently expecting offers of at least $1 billion.
The news that this subsidiary isn’t quite attracting big money offers comes just a few weeks after notable activist investor Bill Ackman announced that he’d sold the remainder of his stake in the company at an 81% loss.
With Ackman ditching Valeant, many investors have wondered if they should follow suit. On the other hand, some are suggesting that Valeant’s most recent dip presents a valuable buying opportunity.
The Numbers
Let’s start with Valeant’s inability to shed its assets at the right price, as this is an issue that could put pressure on the company’s books. As it began its asset sale, Valeant suggested that investors could expect about $8 billion worth of asset dumps, but so far the company has only raised about $2.1 billion.
Valeant’s $30 billion in debt is enough to turn away plenty of investors, but if its plan to reduce that debt burden continues to sputter, even more investors may ditch the stock.
Valeant is also looking at slumping sales and EPS figures. The Zacks Consensus Estimate for the company’s full-year earnings has seen three negative revisions in the past 30 days—contributing to a total of 8 negative revisions in the past 60 days—and our current estimate would reflect a year-over-year EPS decline of nearly 28%. Our current consensus revenue estimate would represent a sales decline of about 10%.
For Valeant’s current quarter, estimates have also been on a downward trend. Our Zacks Consensus Estimate for the period ended in March has shed six cents over the past 30 days.
Bottom Line
This negative earnings estimate revision trend has helped Valeant earn a Zacks Rank #5 (Strong Sell) ranking. While some may hope that this recent slump has moved the stock to its bottom, the available earnings-related data suggests continued challenges for the company. This could lead to even more volatility, which is enough to keep plenty of investors away.
Which Stocks are Zacks Experts Talking About?
Stocks in today's headlines may be tempting buys, but how would you like to peek behind the curtain to see all the best stocks Zacks' team of experts are recommending? Starting today, for the next month, you can follow all Zacks' private buys and sells in real time from value to momentum...from stocks under $10 to ETF and options moves...from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). Click here for all Zacks trades >>