Key metrics focused on
The key metrics used by Jefferson include the quality of the company’s earnings, balance sheet, cash-flows and operating efficiency. With that, Jefferson uses the metrics to rate the company in view of its performance. On the other hand, GMI focuses on the related party transactions, over boarding of the audit committee members and the non-exec directors as well as severance vesting and the asset-liability valuation. In addition, the GMI considers restatements and internal controls as key metrics in their rating. With the metrics, GMI rates the company’s risk in view of the appropriateness of the noted issues.
Recommendation on buy/hold/sell
Regarding the recommendations and rating, Jefferson considers the company a sell. That is informed by the metrics valuation where Jefferson finds the company’s earnings to show a low quality, while the valuation shows a lower risk. However, the company’s operating efficiency; balance sheet and cash flow quality are weak. On the other hand GMI flags the company as a high risk business. That is informed by the analyst’s findings that the company’s ratings falls in lower ranges for all the companies it rates, hence an indication of several concerns that require further study and review.
Discussion of fraud or restatement in the recent reports
In Jefferson’s Report, there is no discussion of fraud or restatement. On the other hand, GMI noted that the Valeant Pharmaceuticals has had a recent history involving significant restatements, write-offs, and special charges in respect to which it has disclosed the material weaknesses regarding the internal controls. In that respect, GMI notes that in September 2014, the company disclosed an audit by the US internal revenue service that covered the 2010 and 2011 tax years.
View about management
Although Jefferson does not comment on the management, GMI notes that the company’s management has been of concern given that the role of the CEO and the chairman has not been split. That is noted to have possible compromise on the board’s independence from the management’s interests. That means that the management could have had undue influence on the board’s decisions.
View about company’s future prospects
In view of the GMI’s view, the company is rated as a high risk regarding the social impacts and potential investments owing to limitations in controls. In addition, considering the company’s ratings are in the lower ranges of all the companies that the analyst has rated, it is expected to have several issues that have potential to affect the future performance. On the other hand, Jefferson does not view the reason to change the rating for the company indicating that it remains a poor performer given the deterioration in the key metrics that were focused on. That is because the business was weak in the quality of majority of the considered metrics with an exception of the strong earnings. In summary, the future prospect of the business remains weak given the poor performance and the continued trend in the noted weaknesses.
