No, that's not my opinion at all.
Global Macro Trading Journal
- Thread starter Daal
- Start date
Either Pearson was the Buffett of drug valuation (was handpicked by Value Act) or he was a fraud who mislead the value guys, inflated the stock to cash out comp and run. There is hardly anything in between. A bearish stance on the stock (whether in the market or via arm chair comments) cannot stand the scenario where he was a good evaluator. There is simply no margin of error
Whatever you say... Pls note that, to the best of my knowledge, I didn't express a bearish view of the stock.
So I listened to the VRX call, what I believe is going on here is that the new CFO (it was his first call) is a straight shooter. I can see why they hired him, the guy doesnt try to sugar coat things. He reset expectations in a big way, first by cutting guidance then by giving a pre-guidance look at 2017, saying it will be down in revenues and in EBIDTA. One analyst called him out on it saying that the numbers presented and statements made still show growth next year. What they are trying to do is to prevent the issue of having to cut guidance and dissapointing investors in the future. So they are resetting expectations now so its easier to beat later
But as I stated in the past, VRX is not really a 'turn around' situation. If the cash EPS that the company reports is real (that is, if Pearson made good buys), the business could even deteriorate further and they would still be fine (in fact, the CFO even said they dont even need asset sales to deal with the liquidity, cashflows are enough)
You are looking at a situation where bk is off the table for 5 years or more, in the mean time they got plenty of time to improve the business, do partnerships, find way to cut costs or simply "get lucky" and benefit from a rebound from the industry/asset prices
Usually, buying stocks in a US industry in distress and holding for 3-5 years is a very good deal. Its a realiable way to make money. And the reason is because the bears will project trends into infinity. Obama didnt get anything done with 8 years in office. Unless there is a dem sweep, I dont think Hillary will be any different
But as I stated in the past, VRX is not really a 'turn around' situation. If the cash EPS that the company reports is real (that is, if Pearson made good buys), the business could even deteriorate further and they would still be fine (in fact, the CFO even said they dont even need asset sales to deal with the liquidity, cashflows are enough)
You are looking at a situation where bk is off the table for 5 years or more, in the mean time they got plenty of time to improve the business, do partnerships, find way to cut costs or simply "get lucky" and benefit from a rebound from the industry/asset prices
Usually, buying stocks in a US industry in distress and holding for 3-5 years is a very good deal. Its a realiable way to make money. And the reason is because the bears will project trends into infinity. Obama didnt get anything done with 8 years in office. Unless there is a dem sweep, I dont think Hillary will be any different
Again, I wish you all the best in this...
Here is a point that actually matters for the VRX saga, instead of all this short-termism:
AGN called VRX a "house of cards", Citron said it was an "Enron", Hempton called it a fraud or something to that effect. Yet they got a new CEO and new CFO who are saying that company is generating $5-$6 in "cash EPS". Now, you would think that these new guys coming in, with no dog in this battle, would slash this down to $0 or lower IF they saw some kind of major fraud or massive cooking of the books (especially, in terms of adding back depreciation/amortization in a very fishy way). There are criminal investigations going on, these new guys have NO dog in this battle. If there was indeed some major fraud going on, they would have likely said so and filled for bk or at the very least, slashed that EPS down to nothing or deepely negative instead of joining the 'fraud' party
Instead, they pretty much reaffirmed it. This tells you that, there is indeed a strong case to be made that the company is cashflow positive in a major way
The amount of well qualified people (and Hempton was complimenting Papa all over the place a few months back), who looked at this portfolio and said there is alot of value is reaching significant amounts. But more importantly, these people have inside info, the shorts don't
It doesnt take them to be right very often for the right side to be on be the long side
AGN called VRX a "house of cards", Citron said it was an "Enron", Hempton called it a fraud or something to that effect. Yet they got a new CEO and new CFO who are saying that company is generating $5-$6 in "cash EPS". Now, you would think that these new guys coming in, with no dog in this battle, would slash this down to $0 or lower IF they saw some kind of major fraud or massive cooking of the books (especially, in terms of adding back depreciation/amortization in a very fishy way). There are criminal investigations going on, these new guys have NO dog in this battle. If there was indeed some major fraud going on, they would have likely said so and filled for bk or at the very least, slashed that EPS down to nothing or deepely negative instead of joining the 'fraud' party
Instead, they pretty much reaffirmed it. This tells you that, there is indeed a strong case to be made that the company is cashflow positive in a major way
The amount of well qualified people (and Hempton was complimenting Papa all over the place a few months back), who looked at this portfolio and said there is alot of value is reaching significant amounts. But more importantly, these people have inside info, the shorts don't
It doesnt take them to be right very often for the right side to be on be the long side
Normally the stock price can be an indicator of which side is likely to be right, but I dont see any way one should expect rational pricing on the stock side in this enviroment, with:
-Hillary likely winning, and the pharma sector is getting a lot of stock outflows
-The chance the democrats will win congress, leading to the same thing
-The company is facing short-term business problems and people love the short-term
-There is a lot of career risk for a stock manager to lose money on VRX. So long interest is mutted
-Momentum
-The long thesis depends on cashflows that are a years (in some cases, more than 10 years) in the future. So people dont see any way the stock can rise soon
If you look at VRX bonds, they are actually doing just fine. Yields are not moving around much.
To me its pretty clear that the stock is worth $35-$40 as an call option on the bull case alone. Its mispriced down here, I expect that to correct itself over the next 1-2 years. At that point, I will lighten up my longs depending on what the news is
-Hillary likely winning, and the pharma sector is getting a lot of stock outflows
-The chance the democrats will win congress, leading to the same thing
-The company is facing short-term business problems and people love the short-term
-There is a lot of career risk for a stock manager to lose money on VRX. So long interest is mutted
-Momentum
-The long thesis depends on cashflows that are a years (in some cases, more than 10 years) in the future. So people dont see any way the stock can rise soon
If you look at VRX bonds, they are actually doing just fine. Yields are not moving around much.
To me its pretty clear that the stock is worth $35-$40 as an call option on the bull case alone. Its mispriced down here, I expect that to correct itself over the next 1-2 years. At that point, I will lighten up my longs depending on what the news is
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