There’s a lot to hate about Valeant Pharmaceuticals Intl Inc. (TSX:VRX)(NYSE:VRX).
The company collapsed from a high of over $300 per share on the Toronto Stock Exchange amid allegations of improper price hikes, a huge accounting scandal, and culminating with an investigation by the U.S. Securities and Exchange Commission (SEC).
Shares currently trade hands at $14.71, a loss of more than 95% from the peak.
Many argue Valeant’s problems are nowhere close to being solved, either. The biggest overhang today is the company’s $30-billion U.S. debt load, taken on when the future looked much rosier. Now Valeant’s new CEO Joseph Papa must sell assets to pay down the debt.
Some investors even argue there’s a chance Valeant doesn’t survive 2017 without declaring bankruptcy.
But amid all the bad news, a few value investors are looking at Valeant.
The first thing these investors are looking at is free cash flow. Valeant posted free cash flow of nearly $2 billion U.S. in 2016. It has a current market cap of $3.8 billion U.S. That puts it at less than 2x free cash flow, which is a ridiculously cheap valuation.
Valeant is also making progress on paying down its debt, recently selling two non-core assets for $2.1 billion U.S. Between those asset sales and internally generated cash flow, Papa projects his company can pay back $5 billion U.S. in debt by mid-2018.
Remember, Valeant is so beaten-up that even small pieces of good news could send shares soaring. It increased 14% when it announced those two asset sales, which were relatively minor deals. A larger deal could be very positive.
Valeant is a risky stock, there’s no doubt about that. But it’s also incredibly cheap.
