GlassHouse: NuVasive Using The 'Valeant Playbook' To Deceive Investors

Short seller GlassHouse Research has accused medical device company NuVasive, Inc. NUVA of “irregular accounting” practices and says the stock has more than 50 percent downside.

In a new report, GlassHouse claims NuVasive has been using every accounting trick in the book to mask the fact that its organic business is in decline.

GlassHouse accuses NuVasive of inflating its earnings and growth numbers using nefarious strategies such as channel stuffing, pulling forward revenue, and delaying normalized expenses.

GlassHouse says NuVasive is closely following the growth blueprint that led to Valeant Pharmaceuticals Intl Inc VRX’s explosive growth and rapid downfall.

“NUVA has borrowed from the Valeant playbook and has employed an ‘acquire at all cost’ model that has helped them to artificially inflate true earnings,” GlassHouse wrote.

The company says NuVasive have been flying under the radar on Wall Street because its non-GAAP numbers seem just fine. However, the difference between NuVasive’s non-GAAP trailing 12-month EPS of $1.77 and its GAAP EPS of 62 cents has now expanded to 185.5 percent.

Finally, GlassHouse points to the recent abrupt departure of former CFO Quentin Blackford and former COO Jason Hannon within the last three months as evidence company insiders see the writing on the wall. GlassHouse says the departures suggest the clock is running out for NuVasive.

“[In] light of our concerns regarding the abrupt departure of key executives, corporate culture, lackluster free-cash-flow generation, channel-stuffing concerns, bloated AR on the balance sheet and depleted accrued expense balance, GHR finds the current stock price to be highly egregious,” the firm wrote.

GlassHouse has set a $24.18 price target for NuVasive and is predicting a major earnings miss sometime in the next three quarters.

At time of writing, the stock was trading around $56.60.

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