It is interesting to see how the market once again overreacted to Valeant by slashing its shares about 13% yesterday. Yesterday the company published its 2016fy results and its 4th quarter results. Furthermore, the company gave guidance for 2017.
4th quarter results slightly exceeded market expectations and the results for 2016 were not surprising at all. Additionally, the full year guidance on 2017 wasn't suprising at all too. So what was Mr Market reacting too?
I prefer to have a fundamental value perspective on Valeant - as on all other stocks - and I see a tremedous undervaluation at current levels. Valeant's free cash flow was 2 billion in 2016, i.e. 5,86 USD per share. Applying a cautious valuation of 8 to 10 times free cash flow per share, the fair valuation range of Valeant would be 47 to 59 USD per share. So even if you see the necessity of a larger discount because of its higher debt, Valeant is extremely undervalued at its current levels.
Disclosure: I am/we are long VRX.