The biggest Valeant bull on Wall Street has been 'humbled'

The biggest Valeant bull on Wall Street has thrown in the towel.

Shibani Malhotra, of Japanese investment bank Nomura, wrote in a note published to clients on Wednesday that she and her team have “lost conviction” in Valeant Pharmaceuticals, and reduced her price target from $175 to $60.

The stock is currently trading at around $35.

“We admit upfront, we have been humbled by our stock call on VRX, which we have defended despite the continuing spate of bad news, as we believed that despite the noise surrounding the company, much of the fundamental businesses had been performing well,” she wrote.

“Despite the fact that our new PT for $60 represents 79.1% potential upside, we do not expect VRX shares to outperform the market near term, as we have lost confidence in management’s ability to understand its own business and to provide reliable guidance.”

Malhotra had to change course after Tuesday, when Valeant’s stock crashed 51% after management held a stunningly clueless conference call filled with mismatching numbers, wild estimates, and unanswered questions. It was the culmination of a tragedy that started in October, when allegations of malfeasance from a short seller combined with government scrutiny over its drug pricing to bring the former Wall Street darling to its knees.

Malhotra’s price target had been the second highest on The Street, and she has been more vocal than any other analyst in her support of the company.

She generally questioned not Valeant’s value, but the company’s reaction to the controversy. She was a supporter of Valeant’s previous business model, and expressed fears that Valeant might be changing strategy in haste.

On the company’s November 10 conference call, for example, she asked management if they had moved too soon to drop Philidor, a mystery pharmacy at the heart of allegations from a short seller.

“You made a comment that Philidor management had assured you that they had done nothing wrong, in which case, was it premature for you to just stop working with the company?”

She also called the allegations directed at the company “misinformation or misunderstanding,” and was unwavering in her support for Valeant CEO Michael Pearson. She described his return to the CEO role after an absence due to illness the “best case” for the company.

She wavered only at the end of last month, when Pearson decided to delay releasing Valeant’s guidance.

“Following our earlier note Pearson’s Return is Best Case for Valeant, in which we wrote that Valeant’s announcement that J. Michael Pearson is returning as the company’s CEO is the best outcome following his medical leave, we wanted to clarify that this is because we see it as an indication that the board is comfortable with his prior stewardship of the company and does not believe he was involved in any misconduct during his tenure as CEO,” she wrote.

We reached out to Malhotra, and will update this post if we hear back.

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