Monday, September 1, 2014

Hempton on Valeant Pharmaceuticals $VRX

Here's a comment on one of Hempton's blog posts about Valeant Pharmaceuticals.

"For 2Q14, they excluded the injectable business in their growth calculation. Why would you exclude that, when the sale was completed on July 10th or AFTER the end of 2Q? HA, it's because if you don't exclude it, the actual organic PF growth and same store growth would have been 6% and flat, respectively, compared to the 8% and 4% they reported. And this is on their numbers.

If you read the footnote on their organic growth, it's almost comical. They exclude "assets held for sale". So anytime a business underperforms, cue facial injectables tanking 40%, it gets classified to asset held for sale and becomes excluded from growth calculation. Can't say they are not clever."
I haven't verified what this commenter is saying, but I'd be hesitant to ever buy anything that Hempton is short.


James said...

I started looking at TDG over the weekend, and it reminds of a lot of VRX. TDG's strategy is to grow by continuously making small, accretive acquisitions, but it reports "EBITDA as defined" that excludes acquisition costs. IOW, they want ppl to think acquisitions are a source of repeated growth but all expenses are purely one-time.

I think shorting a basket of "neo-Outsiders" -- VRX, TDG, POST, BKW, CFX, etc. will be a good trade in the next few years.

Nathan said...


CP, you might like a couple recent posts at Franz Lischka's blog, which I recently discovered. Many of the points echo ideas I've read here.

Draghi’s Jackson Hole speech and what it means for the markets

The 10 year yield is roughly the average expected short term interest rate (which is set by the Fed and the ECB) over the next 10 years. It has to be, otherwise it would create arbitrage opportunities. When the Fed (and in future the ECB) buys bonds, it increases the money supply and boosts inflation expectations. That in turn makes future interest hikes more likely. So when the Fed started buying Treasuries it actually led to a drop in their price (and a rise in yields) as many started selling. The Fed may be the largest buyer in the market, but it still does not control the market, which actually headed in the other direction. (Things may be a bit different in Japan, where the BoJ may be already in a position where it controls the market to such an extent, that there are hardly any trades once the BoJ is absent. But this is definitely not the case in the US)

US Demography and its impact on the economy and the markets

Why? Because an aging population takes out less credit and credit is so much connected to inflation.

Young people take out credit when they enter the labor force, buy a house, a car, start a family. You don’t take out a loan, when you retire; you may not even get one.

For that reason, the inflation-wave in the 1970s could actually be attributed at last to some extend to the exploding labor-force that occurred as the Baby Boomer generation started to work.

CP said...

"When Greenspan unexpectedly raised rates in 1994, too many found themselves at the wrong end of the trade and had to cut their losses (like famously Orange County, at that time the most wealthy district I the US, which went bankrupt due to this game). Nowadays the market is clearly in a different mood. No one buys Treasuries on credit nowadays. It’s a rather over-hated investment these days. So if I would compare the current situation to any of the 3 last tightening cycles, I would rather see strong similarities to 2004, meaning I don’t see a large rise in Treasury yields, even if the Fed begins to tighten next year."

CP said...

Nathan, that's a good blog you linked to. Honestly, I can't understand how anyone could still think that QE was bullish for bonds?

Anonymous said...

You can confirm the comment above by searching for the term "pro formula" (which is undefined but means growth that excludes divestitures) in VRX earnings, 10-Q, and 10-K filings.