Valeant (VRX) Stock Falls Further on Insider Trading Suit

Valeant (VRX) stock is continuing yesterday's decline in afternoon trading on Thursday, after a judge ruled the company and Bill Ackman must face a shareholder lawsuit alleging insider trading.
By Rachel Graf ,

NEW YORK (TheStreet) -- Valeant Pharmaceuticals (VRX) stock is slumping by 4.82% to $75.10 in afternoon trading on Thursday, as the pharmaceutical company and activist hedge fund manager Bill Ackman must face a shareholder lawsuit alleging insider trading.

Pershing Square Capital Management, whose CEO is major Valeant shareholder Ackman, acquired a 9.7% stake in Allergan (AGN) before Valeant announced an unsuccessful $51 billion takeover bid for the company last April, Reuters reported.

Allergan stock soared after the takeover offer was made public. 

Investors who sold Allergan stock during the two months before the bid's announcement are alleging that Ackman knew that Valeant was preparing a bid that ultimately turned hostile, Reuters added.

Valeant and Ackman argued for the lawsuit's dismal, due to false charges, but a judge, who found "serious questions" as to whether "substantial steps" toward a hostile bid were taken, ruled that the defendants must face a lawsuit, according to Reuters.

Separately, TheStreet Ratings team rates VALEANT PHARMACEUTICALS INTL as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

We rate VALEANT PHARMACEUTICALS INTL (VRX) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, good cash flow from operations and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, unimpressive growth in net income and generally higher debt management risk.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth greatly exceeded the industry average of 7.1%. Since the same quarter one year prior, revenues rose by 35.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Net operating cash flow has increased to $736.40 million or 19.02% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -17.22%.
  • VALEANT PHARMACEUTICALS INTL has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, VALEANT PHARMACEUTICALS INTL turned its bottom line around by earning $2.67 versus -$2.62 in the prior year. This year, the market expects an improvement in earnings ($11.66 versus $2.67).
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. In comparison to the other companies in the Pharmaceuticals industry and the overall market, VALEANT PHARMACEUTICALS INTL's return on equity is significantly below that of the industry average and is below that of the S&P 500.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 40.29%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 82.71% compared to the year-earlier quarter. Although its share price is down sharply from a year ago, do not assume that it can now be tagged as cheap and attractive. The reality is that, based on its current price in relation to its earnings, VRX is still more expensive than most of the other companies in its industry.
  • You can view the full analysis from the report here: VRX

Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.

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