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Diamond Hill Thoughts On Valeant

Diamond Hill Management offers up some thoughts on Valeant Pharma (NYSE: VRX); specifically on how the backlash for price hikes could impact the stock over the long-term. will probably become more difficult for Valeant, and others, to raise prices going forward whether from a legal, structural or public relations standpoint. However, there seems to be a misperception about the extent to which Valeant’s organic growth has been driven by pricing versus volume. Year to date, organic revenue growth has been 15% with half of that coming from volume. Also, management has indicated that large price increases have been limited to 10% of the business. This segment, as a percentage of the total, will shrink over time, and management has indicated an aversion to additional M&A focused on “pricing opportunities.” For the next five-year period, we expect 6% to 7% annual revenue growth with likely two-thirds of it driven by volume. The stock is currently priced for no growth, or worse, so even if there is no ability to raise prices, there is still very significant upside in the stock.


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