CreditSights Not Running For Exit At Valeant Yet: Here's Why

• Valeant Pharmaceuticals Intl Inc (NYSE: VRX) shares have lost 53 percent since September 23, declining steeply from a high of $223.99.
• CreditSights’ Andrew Lindner maintained an Outperform rating on the company.
• Despite Citron’s allegations of fraud at the company, it may not be time as yet to sell off the shares, Lindner said.

Valeant faces fraud allegations by Citron Research, which has accused the company of “stuffing its inventory channel and improperly recording transactions as sales,” analyst Andrew Lindner mentioned.

Citron alleged that Valeant created "phantom accounts" and phony invoices to mislead auditors and investors, and that the company is in dubious relationships with certain specialty pharmacies. Investors reacted promptly to the news, sending the company’s shares and bonds down sharply.

Valeant responded to Citron’s allegations, saying that they were erroneous. Lindner stated that the most important thing for Valeant to do is to be “forthright with the market and not hide behind lawyers or concerns over disclosing marketing practices to competitors.”

Valeant’s press release is a step in this direction, but the company “needs to do more,” the analyst commented. “While we would not be surprised if these actions result in fines, we see this outcome as manageable in the context of the free cash flow story.”

Valeant had been among the fastest growing companies in the sector and its stock surged more than 1000 percent in five years. While news of Citron’s allegations has understandably exerted pressure on Valeant’s shares, the 50 percent decline “is difficult to stomach,” Lindner pointed out.