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Pot, Meet Kettle: Wells Fargo Says Valeant's Stock Too Risky In Light Of Potential Fraud Charges

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Pot, Meet Kettle: Wells Fargo Says Valeant's Stock Too Risky In Light Of Potential Fraud Charges

Wells Fargo reiterated its Underperform rating on Valeant Pharmaceuticals Intl Inc (NYSE: VRX), saying the new Bloomberg report over potential accounting fraud charges on the company makes the stock further risky for investment.

Bloomberg reported that U.S. authorities are investigating potential accounting fraud charges related to the company's secretive ties to Philidor, a specialty pharmacy company that Valeant actually controlled.

The report, however, does not cite whether the case would target only the former CEO Mike Pearson and CFO Howard Schiller, or the company as well.

Valeant issued a statement saying it does not comment on rumors about investigations.

Nevertheless, Wells Fargo said the newly reported fraudulent account charges would make refinancing “significantly more expensive or possibly unavailable,” apart from potential sizable financial penalties. In addition, the company would find difficult to retain and attract talent.

In recent times, Valeant has been hit by various lawsuits and investigations, including an insider trading lawsuit and suits from T. Rowe Price and TIAA-CREF, as well as investigations from the SEC, U.S. Attorney’s Office in the Southern District of NY, the IRS and FBI, among others.

“We strongly suggest investors consider the risks of potential sizable financial penalties and costly legal actions on a company with more than $30 billion of debt that has already sought debt waivers twice,” analyst David Maris wrote in a note.

Maris pointed out that Valeant has not reserved neither against any class action suits, nor any cases that may arise from the IRS, DoJ and SEC investigations. However, Maris included $2 billion of legal liabilities in his model.

As such, the analyst is refraining himself from recommending Valeant as an investment, given too many risks associated with the shares.

“Our concerns stem from a number of factors, including opaqueness related to accounting issues, what we see as balance sheet risks, unanswered questions related to business practices, and confusion over how the Walgreens deal actually benefits Valeant,” Maris elaborated.

Maris has a valuation range of $17 to $22 on the stock, which is currently up 3.7 percent at $18.50.

Latest Ratings for VRX

DateFirmActionFromTo
Jun 2018DowngradesBuyHold
Jun 2018UpgradesEqual-WeightOverweight
May 2018UpgradesNeutralBuy

View More Analyst Ratings for VRX
View the Latest Analyst Ratings

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