Valeant Pharma (VRX) Off Highs, But Shorts Not Jumping Back in Water Despite Analyst Caution

Yesterday's brutal downgrade of Valeant Pharma (NYSE: VRX) by JPMorgan, which caused a nasty 10.8% drop in the stock, was not a result of short sellers re-loading the stock but appears to be a result of longs taking profits, according to real-time short interest data from S3 Partners.

Short interest in VRX inched up from 31,907,556 shares on 12/13/17 to 31,969,330 shares on 12/14/17, according to the data. Meanwhile, since late-May 2017 short interest is down about 44% from the 57 million share level with shares are up 141% from its yearly lows.

In its downgrade of Valeant, JPMorgan analyst Chris Schott said the valuation is stretched and sees 2018 estimates as "too high."

He added that while the company has made progress stabilizing its core operations and addressing near-term debt maturities, it faces significant patent erosion over time that will result in a step down in 2018 EBITDA (JPMe: $3.1bn) and muted recovery off of these levels.

Mizuho Securities analyst Irina Koffler echoed JPMorgan's concerns on the valuation and the outlook, but also worries about a dilutive financing event after the recent run up.

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