On Wednesday, the S&P 500 gained 0.7% and Toronto gained 1.6%.
Canadian Western bank was up 5.3%. Constellation Software was up 3.1% to $598 dollars. Constellation released a good earnings report after the close although the revenue growth may have been lower than expected.
Bombardier will release earnings and have a conference call before the market opens tomorrow morning. Hopefully the company can offer some reasons for optimism.
Yesterday I mentioned Home Capital. Its earnings were down but only 2% so I am not sure that will satisfy the short-sellers although certainly the stock had recently been pricing in continued growth. The stock was halted after the close and if there is any sanity (and there may not be) it will remain halted until after the earnings conference call tomorrow morning. The stock may gyrate but I am not sure that it should sink too much, but we shall see.
I am near completion of my analysis of Valeant. I am leaning towards a rating of Sell. The stock just looks too high to me and I have concerns about management’s view of “cash EPS”. Investors are effectively paying up front for an expectation of pretty strong growth. Also this is a highly leveraged company with a debt rating of BB minus. I am not sure that investors are taking into account the risk here.
But then again management has certainly grown the company at a tremendous rate.
I have trouble with the concept that the company buys out another company at a premium to the recent share price and a big premium to book value of that acquired company and then investors pay a multiple of quite a few times the book value that Valeant has paid. It’s premiums on top of premiums. Clearly book value may not be relevant to a drug company (The value of the proverbial “cure for cancer” would have NOTHING to do with the book value of that cure.) But how do we explain Valeant paying $x dollars for the equity in a company and then that turns into shareholders shortly paying some large multiple of “X” like 10 times! No one has suggested that Valeant has in the meantime found anything like the cure for cancer and so it all seems just too good to be true to me. I mean it would take a LOT of synergies to explain how Valeant has added so much value by means of the acquisition.