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Goldman Downgrades Valeant On "Lack Of Confidence" After Charlie Munger Slams Company
On Friday afternoon, in addition to the endless Bill Ackman conference call which pushed the stock lower the longer it dragged on, the stock of troubled pharma Valeant was hit with a double whammy when Citron's "short-seller" Andrew Left tweeted that he planned a new report on Valeant on Monday, following his Oct. 21 report that accused the company of using specialty pharmacies for “phantom sales” to inflate its financial results. In the tweet Friday, he said Citron would “update full story,” adding: “Dirtier than anyone has reported!!”
He may have exaggerated, because as the WSJ reported overnight Left since "pulled back on hints that he would unleash new bombshell revelations Monday about the drug company."
A bigger problem for Valeant, however, emerged today when none other than Warren Buffett's right hand man Charlie Munger in an interview with Bloomberg "tore anew into the besieged drug company, calling its practice of acquiring rights to treatments and boosting prices legal but “deeply immoral” and “similar to the worst abuses in for-profit education.” In his role as chairman of Good Samaritan Hospital in Los Angeles, Munger said, "I could see the price gouging.” And speaking as a storied value investor, he said, its strategy isn’t sustainable: “It’s deeply wrong.”
As Bloomberg adds, "Munger’s stance has extra significance, because some of the drugmaker’s largest shareholders follow the style of investing that he and Buffett, 85, popularized. Ackman frequently expresses his admiration for their firm, Berkshire Hathaway Inc. And Valeant’s largest investor, Ruane Cunniff & Goldfarb, which runs the Sequoia Fund, shares a decades-long history with Buffett."
Munger, 91, brought up Valeant in March, before an audience of about 200 people assembled to hear him at the annual meeting of Daily Journal Corp., where he is chairman. He was discussing a passage in Buffett’s recent letter.
Companies like ITT Corp., Munger said, made money back in the 1960s in an “evil way” by buying businesses with low-quality earnings then playing accounting games to push valuations higher. Investment managers looked the other way. And worse, he added, it was happening again.
“Valeant, the pharmaceutical company, is ITT come back to life,” Munger said at the gathering. “It wasn’t moral the first time. And the second time, it’s not better. And people are enthusiastic about it. I’m holding my nose.”
In other words precisely what we said on Friday: the biggest problem for Valeant is not whether or not the Philidor accusations lead to criminal charges, but that its roll-up strategy, which served Wall Street and especially Goldman, as much as it served VRX shareholders, is now finished with both the stock plunging and its bond yields soaring.
And perhaps to prove just how much clout Munger does indeed have, moments ago the most important Wall Street bank, Goldman Sachs, downgraded Valeant to Neutral from Buy, cutting its share price target from $180 to $122. From GS:
We downgrade VRX to Neutral from Buy and lower our 12-month DCF-based price target to $122 from $180. Since being added to the Buy List on 11/30/14, VRX is -36% vs. S&P +1%. Given the events that have transpired very rapidly in recent weeks that have raised many questions about certain aspects of VRX’s business model, we have less confidence the market will reward the stock anytime soon without clarity as to the path forward. We move to the sidelines until there is further visibility on how management will repair the reputational damage to the company, as well as grow its business effectively in this increasingly challenging environment.
And continues with its current view:
Current view
We continue to believe that longer term VRX’s fundamentals could justify a much higher valuation, but risk/reward in the stock in the near-to-medium term is less clear. We expect a much longer road than we previously thought for the dust to settle and for VRX to be able to regain enough investor confidence to attract a sufficient amount of new money into the stock. Key factors prompting our downgrade now: 1) We were surprised VRX’s decision to sever ties with Philidor wasn’t received better and it indicated to us investors remain very concerned that VRX’s troubles could potentially spill over into other areas of the business. 2) We’re more concerned about potential business risk for VRX with physicians, patients and customers as a result of all the recent developments; we think it’ll take at least a couple of quarters of execution to have a better sense of that. 3) With healthcare out of favor and biopharma having contracted so much, we believe there are other stocks for investors to choose from with attractive valuations and not the same overhangs VRX has if new money returns to the sector.
We lower revenue/EPS estimates: 5%/9% in 4Q15 and 6-7%/11-12% in 2016- 2019E mostly to reflect the impact from terminating Philidor, as well as more conservatism on pricing, and modestly higher opex to improve VRX’s profile as a pharma company. Our lower PT is driven by lower estimates and terminal multiple (7x from 8x) due to higher execution risk given recent uncertainties. Key risks are pricing concerns, subpoenas, execution without Philidor, pace of M&A.
This is the same Goldman which we profiled as making hundreds of millions in Valeant-related fees in "Tying The Valeant Roll-Up Together: Presenting The Goldman "Missing Link""
Gun to head: the Valeant bottom may well be in.
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Munger...................Shorting the stock then!
Check Chuck's clothes linings.....you know that son of a bitch has some gold stashed there.
And if you ever shake hands with him you better count your fingers afterwards.
He used a hand zapper on me that sent a tingle on down to my feet.
Munger is like the mafia, he's just mad he didn't get a cut.......I'm sure they never invested in commodities either.
Bet they are buying it hand over fist now.
Like Munger is not a degenerate himself, if you think guys like him and buffet are not part of the regime I have a bridge to sell you.
I'll give a pass to a 91 year old guy in his business calling his brethren 'immoral'.
That's why you're a better person than most of us.
"Goldman Sachs, downgraded Valeant to Neutral from Buy, cutting its share price target from $180 to $122."
Wow, just in the nick of time. These sell-side guys are fucking geniuses.
Right on time. Now that the games up and there's no more investment banking fees to be had they will come up with the appropriate rating. You don't think those ratings are there to help you do you?
If we are lucky Warren's grotesque friend Charlie may choke to death on that smug hypocrisy he is sporting.
Goldman Sachs, downgraded Valeant to Neutral from Buy... TIMELY INFO. THANKS!!!! /s
Valeant gets slammed .... for price discovery .... their product must be really effective .... what better way to call attention to that .... than adjust the price to a realistic level .... sometimes it works the other way .... and no one complains ?
Munger - " Call me a traditionalist, there are unwritten rules to fuck over people that need to followed to maintain civility."
okay charlie, nappy time now...
Hey Munger, is that the same immoral as Berkshire H, sucking on the government tit?
Profit is how winners are told .... we like what you're doing .... here's some money .... do more of the same ?
Starts out good, but the finish, not so much.
Since being added to the Buy List on 11/30/14, VRX is -36% vs. S&P +1%.......we have less confidence the market will reward the stock anytime soon without clarity as to the path forward.These guys are great!!
Question remains, when does the worlds Downgrade those Scum Fucks at Goldman?
Bored & something woke me up...
The Munger Games: Mocking Jackass
Golden Balsach muppeteers and "deeply immoral" go together like peas and carrots.
I know others above may have said this, but I just have to vent. I guess capitalism is OK when it's them blocking an oil pipeline so that the product has to be carried on their trains. There's no hypocrite like an old grasping hypocrite. How moral is it to benefit from government largesse you wrinkled prune, while lecturing and hectoring others?
If you think the free market is ugly .... try Stalin's or Obama's .... "casting couch" method ?
Oat rich granola .... is better stool fiber .... than beans !
Immoral is Quaker Oats buying up Snapple .... to spite Rush ..... and losing billions .... for their investors ?
That a way to dump em GS, like a rolled up, used condom, after making billions in fees and riding the roll up to the top.
"Sell it, sell it all..."
my fantasies before i die: sleep with kate upton, see peace in the world, and give munger and his gay pal a beating they would never forget.
Warren Buffett's right hand man Charlie Munger in an interview with Bloomberg "tore anew into the besieged drug company, calling its practice of acquiring rights to treatments and boosting prices legal but “deeply immoral” and “similar to the worst abuses in for-profit education.” In his role as chairman of Good Samaritan Hospital in Los Angeles, Munger said, "I could see the price gouging.” And speaking as a storied value investor, he said, its strategy isn’t sustainable: “It’s deeply wrong.”
Goldma Sachs response..."we are neutral concerning this company"