Valeant Analysts Turn on Drugmaker After Record Stock Drop

Valeant Analyst: More Bad News to Come
  • Some of biggest bulls cut price targets on the shares
  • `We have been humbled by our stock call,' Malhotra says

Wall Street analysts’ love affair with Valeant Pharmaceuticals International Inc. is finally starting to fade. On Wednesday, two of the biggest backers of the beleaguered drugmaker pulled their buy ratings on the stock, joining nine analysts who turned against the company after it sank 51 percent in one day.

Shibani Malhotra, an analyst with Nomura Securities, reduced her rating on the shares to neutral, and gave a 12-month price target of $60, down from $175 previously. Meanwhile, Evercore ISI’s Umer Raffat suspended his buy recommendation and $200 target, saying “this one has been nothing short of humbling for me.” Valeant shares closed little changed at $33.54, following Tuesday’s plunge.

“We have lost confidence in management’s ability to understand its own business and to provide reliable guidance,” Malhotra said in a note to investors. “We have been humbled by our stock call on Valeant, which we have defended despite the continuing spate of bad news.”

A month ago, there was only one sell rating on Valeant out of 25 analysts covering the stock, according to data compiled by Bloomberg. Now there are four, with 10 holds. After the shares’ worst day ever, some analysts are starting to cut price targets as well:

AnalystNew TargetOld TargetRating
Andrew Finkelstein,
 (Susquehanna Financial)
$35$105Neutral
Christopher Schott
 (JPMorgan Chase & Co.)
$70$200Overweight
Shibani Malhotra
 (Nomura Securities)
$60$175Neutral
David Risinger
 (Morgan Stanley)
$39$98Equalweight

Valeant shares have been falling since August, when they peaked at $262.54. The company was questioned over its high drug prices, criticized by presidential candidates and investigated by Congress, and had to cut ties with a mail-order pharmacy that critics said it was using to inflate sales. On Tuesday, the company cut its 2016 guidance, and held a disastrous conference call where it had to revise a press release issued just hours before.

Evercore ISI’s Raffat, who was on the conference call, pushed back against Valeant Chief Executive Officer Mike Pearson.

“I just really want to focus in on some of the changes in fundamental business that seem to be coming out in the first quarter,” Raffat said. “Mike, how different is the guidance number to date versus when you first came back a couple of weeks ago?”

In a note to investors after the call, the analyst said he’s suspending his rating until Valeant files its annual report, which has been delayed pending an internal probe. The company couldn’t provide assurance that its actual results for the fourth quarter won’t differ from the preliminary financial data released Tuesday, and indicated that the changes could be material, Raffat said.

“Lots to reflect on,” he wrote. “I clearly stand corrected.”

Malhotra was one of a handful of bullish analysts that Pearson picked for a one-on-one call the day after he returned to the company from medical leave this month. At the time, Malhotra was a believer.

“We were able to speak with CEO Mike Pearson this afternoon, following which we have increased comfort in our buy rating,” she wrote on March 1. “The market has been quick to assume any uncertainty equates to bad news, and this is likely not the case.”

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