Why Valeant Pharmaceuticals Shares Rallied 10% Earlier Today

VRX Price Chart

Image source: Flickr user

What: Following a seemingly never-ending string of bad news, including Moody's downgrading its debt rating on Thursday, shares in Valeant Pharmaceuticals bounced 10% higher earlier today.

So what: As investors have increasingly grown wary of risks associated with its buy-reprice-relaunch business model, Valeant Pharmaceuticals shares have taken a drubbing in the past year.

Last month, Valeant Pharmaceuticals' management surprised investors by cutting its sales and profit outlook for 2016 and revealing that debt holders could cry "default" if it misses a April 30 deadline to file its audited financials with the SEC.

This week, worry that Valeant Pharmaceuticals' $1.2 billion cash stockpile was insufficient relative to its $30.9 billion in debt prompted Moody 's Corporation Investors Service to downgrade the company's corporate family rating to B2 from B1. That downgrade caused Valeant's shares to slip from above $30 on Wednesday to a low of $25.75 yesterday.

VRX Price data by YCharts .

In addition to debt worries, Moody's also cited uncertainty in the C-suite stemming from the looming departure of Valeant's longtime CEO and operating headwinds related to a more challenging drug pricing environment as reasons for its downgrade.

Now what:

Because of that, investors may be looking beyond the potential fear of default and higher interest expenses associated with the ratings change to the potential for management to get its arms around its struggles and right its ship.

In March, Valeant's management forecast that its adjusted EPS (non-GAAP) would be between $9.50 and $10.50, and if it can deliver on that forecast (and assuage debt holders), then an argument could be made that Valeant's shares are cheap. That may or may not be true. A lot will depend on who Valeant Pharmaceuticals hires to replace its outgoing CEO, whether a new distribution deal with Walgreen's Boots Alliance pays off, and when it gets current on its SEC filings.

Those are questions that remain unanswered, though, and therefore, investors probably shouldn't put too much emphasis on today's move.

A secret billion-dollar stock opportunity

The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early, in-the-know investors! To be one of them, just click here .

The article Why Valeant Pharmaceuticals Shares Rallied 10% Earlier Today originally appeared on

Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool owns shares of and recommends Valeant Pharmaceuticals. The Motley Fool recommends Moody's. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

Copyright © 1995 - 2016 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

More Related Articles

Sign up for Smart Investing to get the latest news, strategies and tips to help you invest smarter.