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The Morning After: Valeant Default Risk Soars After Called Next "Tyco", Sellside "Analysts" Humiliated
Yesterday's latest Valeant implosion confirmed something we have warned about all along: sellside analysts are not only completely clueless and utterly useless, they are a threat to your money: instead of at least striving to know everything there is to know about the company under coverage, or at least reading all the available negative literature about VRX (the Citron reports was nothing new: it was based entirely on this report by the Southern Investigative Reporting Foundation which had been public information since the 19th of October, and should have given both the sellside community and the company enough advance notice to prepare its response) all they know how to do is chase momentum, and let price determine both their "recommendations" and their price targets.
Case in point, as we showed before, ahead of yesterday's implosion, there were 19 Buy ratings, 6 Holds and just one Sell, with an average stock price target of $250.
Oops.
Well, as always happens after shocking events like yesterday which "nobody could have possibly predicted", watching the Penguin gallery reel in its humiliation is absolutely worth the price of admission.
Sure enough, there has been a veritable paradop of utterly worthless analyst reports, some defending their wrong calls on the company which until recently was the darling of the hedge fund world, others flipping and admitting they were wrong, while even others are simply dropping the matter entirely (such as Susquehanna's Andrew Finklestein) who have decided to drop coverage altogether when things get messy.
Here, courtesy of Bloomberg, is a snapshot of the major banks' reactions "the morning after."
NOMURA (Shibani Malhotra)
- “Our own diligence suggests” report is not accurate
- VRX has stated it books specialty pharmacy rev. only when they have been dispensed
- View current weakness as buying opportunity
- Rates buy, PT $290
SUSQUEHANNA (Andrew Finkelstein)
- Suspending coverage due to scrutiny, not crediting any specific allegation
- “Expect significant volatility will continue challenging this framework”
- “Door is now wide open to questions about any number of business practices”
BARCLAYS (Douglas Tsao)
- Market overreacted to report
- VRX response addressed concerns about rev.
- Important to note not all VRX volume through specialty pharmacies goes through Philidor
- Rates overweight, PT $300
DEUTSCHE BANK (Gregg Gilbert)
- Cautious due to uncertainties with U.S. drug pricing, VRX’s specialty pharmacy distribution model, related government inquiries
- Expect new investors will want detailed understanding of co.
- Important to see how co. deals with “period of adversity after a long period of significant success”
- Rates hold, PT $204
BANK OF AMERICA (Sumant Kulkarni)
- Will continue to monitor; no change to model
- VRX will remain volatile, require clearer articulation from mgmt about risk
- Continue to like VRX’s diverse business mix
- Rates buy, PT $290
JPMORGAN (Chris Schott)
- “Effectively see no impact from these headlines to other companies in our coverage”
- Understand that VRX books rev. after shipment to end customer
- Accounting method limits VRX’s ability to “stuff the channel,” ship excess inventory
- Rates overweight, cuts PT to $265
MORGAN STANLEY (David Risinger)
- If allegations wrong, depressed shrs are buying opportunity
- VRX response did not address claims about questionable Philidor relationships with other pharmacies
- Broader concerns about specialty pharmacy “overblown”
- Rates equal weight, PT $200
UBS (Marc Goodman)
- VRX clarification should help investor confidence
- Expect shrs to recoup lost ground
- Surprised by reaction, VRX addressed most issues in recent conf. call
- Rates buy, PT $285
Here are some of the more amusing report covers saved here for posterity's sake:
First, DB with the best summary of Valeant's day to day existence:
BMO flips, amazingly no longer sees VRX hitting $265:
And the best one: here is BTIG with the "head in the sand" routine:
And while the above is meant to put a smile on the faces of all those longs who may otherwise be suicidal after the company's stock price has been cut in two in about a week, the sad reality for the company is that things are not only in crisis mode, but are likely going far, far worse. Case in point, the former CEO of Medtronic Bill George who said he’s been saying for three years that Valeant business model makes “no sense” during a CNBC interview.
"I see it more as a house of cards. I’m afraid it’s going the Tyco direction" adding that it "may take 12 years for VRX to transform business model to focus on R&D, saying "There’s a lot of smoke there."
As of this moment, the bond market is agreeing with George: the spread on Valeant bonds, courtesy of Markit, is approaching a record 700 bps...
...and with Valeant CDS now trading 650, it means Valeant is now facing a nearly 50% probability of default in the coming 5 years.
We hope investors in Bill Ackman's Pershing Square can sleep well at night knowing that his biggest investment has a coin toss' chance of going broke in the near future.
Losing is becoming a habit...
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I think the lesson in all this is that human sellers can quickly overwhelm Algos and force them to change direction. Whether or not the allegations are true (and they appear not to be), the fact that the stock can take such a hammering from old information, just demonstrates how fragile the 'rally' reallly is.
Now everyone has the same information. Look for some stealth selling to take place across the market and for the price of risk to begin rising again - in spite of the VIX beat downs.
I think it also demonstrates that the market is NOT an efficient discounter of information and that NOT ALL INFORMATION is in the stock price.
Finally, I find some statementsby the author(s) of this article to be akin to rumour mongering, innuendo as slurs, and innuendo used to cast aspersions where no proof actually exists. They are no better than the momo sell-0side analysts. We need a movement for REAL information provision.
Brings to mind the popular phrase on ZH; Useless Eaters. A proud man who cleans shitty toilets at Burger King is much more useful then these assholes!
Perishing Capital
You know Ackman is for sure reading this, biting his manicured nails.
my favorite..
"Will continue to monitor; no change to model"
So, you admit that your model is completely void of a very VERY relevant variable, yet when that smacks you in the face, you don't hide in shame, you actually admit in public that there will be no change in your model. Does BofA have a model for Pink Slips?
"Continue to monitor" sounds better than "we're looking for muppets to bend over". Unfortunately for the muppets, they'll find plenty of volunteers.....
gmak: ...
Yawn - a post almost saturated with weasel words criticizing broadly everybody except Valeant, but specifically pointing to nothing
Analyst = marketer
It's as simple as that.
true
r
I personally prefer the term ' pump monkeys '.
UH UH AHAH !!
BUY !!! AAAAAHH
Who down voted that? I mean, really...
Who down voted that? I mean, really...
An analyst, er, pump monkey.
"I see it more as a house of cards...There’s a lot of smoke there."
and our entire financial system is as simple as that ^^^
most folks have NO idea what tyco was all about
r
Wasn't Ican going to bankrupt Ackman?
They kissed and made up about a year ago.
The bad blood is forgiven. Doubtful it is fogotten, though.
just another overpriced pos imo
The article says the stock value has gone down 50%. If your margined 3 to 1 as many of the quoted institutions probably are....Is there any left after the margin call??
Companies utilizing a M&A "roll-up" strategy inevitably hit the wall and leave investors holding the bag (e.g. Tyco, et al). The problem is getting the timing right on the short side. Shorting VRX over the past 5 years through July 2015 would have left you like Bill Ackman with Herbalife. These "roll-ups" work until they don't.
( I see dead people. But they don't know they are dead. )
And.......and.......and it's gone!!!
thank you, ZEROHEDGE, the photo of Ackman on the bike made my morning ...... (she writes as she bursts out laughing !!) who luvs this stuff!
sellside analysts: highly trained liars who warp reality using esoteric language and obfuscation to fleece the sheep and throw them under the bus as the big guns steal and pillage everything they can get their hands on.
Come on. These professionals are just "selling". They are not responsible for your losses. Read the disclaimer on the bottom of the form.
If they don't "sell" enough stuff, they will be working at Walmart next week. Or, the neighborhood car lot. Actually, the more I think about it, they'll be calling me at dinner time, trying to get me to buy a house alarm.
The equity analysts = GIMP who enters the room after the banker does the deed to eat leftover creampie.
So there's no point warning these herd animals, is there.
Or, more likely, once they are warned, they all try to act in such a way as to not spook the others. These are the moments that the wolves congregate, watching for stragglers and those who get too far outside the protective mass of the herd. But the cliff edge is still right where it's always been, and herd keeps running toward it. The question for the individual animals in the herd is whether the fall off the cliff or the wolves pose a more pressing danger.
No doubt there are plenty of traders buying and selling Valeant this morning for every imaginable reason.
All of them are momentum chasers and it always works until it doesn't....
I dont understand why more stock traders don't participate in class actions which have proven to recover all losses and in some cases more, such as for a large company like VRX https://steinmeyerlaw.com/valeant-pharmaceuticals-vrx/