Valeant Pharmaceuticals International Inc. (NYSE: VRX) has taken a headline beating as one raising prices way too much, and multiple charges by a short-seller that many of the accounting practices at the firm are sketchy and the company has engaged in a series of sham transactions to inflate its drug sales. It is a gigantic holding in Bill Ackman’s Pershing Square hedge fund.
The company develops, manufactures and markets pharmaceuticals, over-the-counter products and medical devices worldwide. It has an extensive list of products that treat everything from severe acne to Wellbutrin XL for major depressive disorder in adults; Jublia for onychomycosis of the toenails; Xenazine for chorea; Targretin for cutaneous T-cell lymphoma; Arestin, a subgingival sustained-release antibiotic; and Provenge for the treatment of prostate cancer.
Jefferies notes that the company has cut ties with controversial specialty pharmacy company Philidor. While the analysts do reduce estimates as Philidor accounted for 7% of revenues, they are still looking for 2016 earnings to be a whopping $14.78. That is an incredible low six times earnings at the current price level.
The stock is off a gigantic 65% since August, and it’s very important to note that sentiment is still very negative and, if any of the charges against the company end up being proven, there could be substantial additional downside risk here.
The Jefferies price target is a massive $172, and the consensus is much lower at $52.38. Shares ended Tuesday at $83.68.
This is a leader in the total addressable hard disk drive (HDD) market and a long-time innovator in the storage industry. Western Digital Corp.’s (NASDAQ: WDC) storage solutions help to create, manage, experience and preserve digital content. It is responding to changing market needs by providing a full portfolio of compelling, high-quality storage products with effective technology deployment, high efficiency, flexibility and speed. Its products are marketed under the HGST and WD brands to original equipment manufacturers, distributors, resellers, cloud infrastructure providers and consumers.
The most compelling news is that the company made a stunning $19 billion purchase of SanDisk. This could be a strong addition to Western Digital’s current offerings, and it could significantly benefit from SanDisk’s technology and portfolio leadership in the NAND flash semiconductor and enterprise flash systems market.
The drop off in the PC business helps to spur initiative in the company’s cloud business, and analysts estimate that the company’s gross profit contribution from business critical (cloud) drives will exceed that of PCs by the second half of next year. Of all the stocks beaten down due to the poor PC environment, the Western Digital may have the most upside potential — especially when Jefferies notes that in 2016 enterprise HDDs will have an average three-year cost of $100 per year, versus $500 for NAND.
Investors receive a 3.15% dividend. The $95 Jefferies price target is less than the consensus target of $97.59. Shares closed Tuesday at $63.58.
All these top value picks at Jefferies have some degree of either headline risk or just headline overhang. That is why we strongly note that these are really only suitable for extremely aggressive accounts that can handle severe loss of capital. With that in mind, the upside potential if the analysts are correct, especially on Valeant, is huge.
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