Why Valeant Pharmaceuticals (NYSE: VRX) Stock Declines in Pre-Market Trading

The stock of Valeant Pharmaceuticals (NYSE: VRX) dropped by 6.04 percent to hit $107.25 during pre-market trading on Monday after the pharmaceutical giant has made an announcement that its CEO J. Michael Pearson will be on a medical leave of absence. During the previous week, Pearson was hospitalized due to severe pneumonia. The company has created an Office of the Chief Executive Officer, which includes the CFO of Valeant, as well as other executives.

“The committee will be working closely with the entire management team to ensure that the company continues to operate normally while Mike focuses on his health,” lead director of Valeant Mr. Robert Ingram stated on Monday. “I am confident that with the vast industry and business knowledge from the management team and the board of directors, we will manage through this period,” he further added.

Several analysts have given Valeant Pharmaceuticals Intl a Hold rating due to various mixed factors. Some of these primary factors show strength, while others indicate some weaknesses. Some of these strengths can be seen in its good cash flow from its operations, growing profit margins, as well as solid growth in revenues. On the other hand, Valeant has some weaknesses such as disappointing net income growth, lackluster stock performance, and higher debt management risk.

In terms of growth in revenue, it has significantly surpassed the 3.5 percent industry average. Since the same quarter in the previous year, the revenues surged by 35.5 percent. This revenue growth did not seem to have trickled down to the bottom line, as indicated by a drop in earnings per share.

In comparison to the year-ago quarter, the net operating cash flow has gone up by 19.02 percent or $736.40 million. Moreover, it has also surpassed the -0.44 percent cash flow growth rate of the industry average.

During the latest quarter, Valeant has witnessed a sharp decline in earnings per share when compared to the same quarter in the prior year. Just recently, the pharmaceutical company reported volatile earnings. Regardless of this, we believe that it is set for more growth in earnings per share during the following year.

In the previous fiscal year, the company has turned improved its bottom line, as it earned $2.67 in comparison to $2.62 in the previous year. For the current fiscal year, analysts anticipate to see higher earnings of up to $10.28.

Compared to the year-ago quarter, the present return on equity of Valeant has declined a bit, suggesting a minor weakness in the corporation. Moreover, when compared to other firms in the Pharmaceuticals sector and the overall S&P 500 index, the return on equity of the company is way below that of both the industry average and the Standard & Poor’s 500.

Moreover, the VRX stock has not also performed too well, trading lower by 18.23 percent and underperforming the S&P 500. This partly reflects the sharp downturn in the company’s earnings per share in comparison to the year-ago quarter. Looking ahead, there is nothing in the results of the company that will change the stock’s one-year trend.