We Think Valeant Still Has Over 40% Downside | $VRX

Takeaway: Our analysts have been bearish on Valeant for almost two years. Meanwhile, Wall Street's VRX price target implies 257% upside. Okay.

We Think Valeant Still Has Over 40% Downside | $VRX - Ackman cartoon 10.26.2015


Ka-boom ... Shares of Valeant Pharmaceuticals (VRX) were cut in half today after the company cut its 2016 revenue forecast by 12% and said a delay in filing its annual report could pose a debt default risk. Our Healthcare analysts Tom Tobin and Andrew Freedman have been warning about the company's "unsustainable business model" for a while now.



Here's the "VRX | Bear Case $20" note in its entirety:


We Think Valeant Still Has Over 40% Downside | $VRX - valeant


Never fear Valeant shareholders! Wall Street consensus still sees 257% upside from here.


Click to enlarge

We Think Valeant Still Has Over 40% Downside | $VRX - valeant price target


Now, that's obviously ridiculous. But so is the sell side's track record for predicting a VRX price target. Check out the chart below. Keep in mind that Valeant shares currently trade around $35. 


We Think Valeant Still Has Over 40% Downside | $VRX - graph valeant



Cartoon of the Day: Crude Or Crud?

Cartoon of the Day: Crude Or Crud? - oil cartoon 03.15.2016


Oil prices continue to fall despite Wall Street's continued predictions otherwise.

A Paradigm Shift In Retail Is Happening

Takeaway: We hit the point where e-commerce dollar growth surpassed Brick & Mortar. 2016 is officially ‘Game On’ for financial impact of e-comm.

Editor's Note: This is a brief excerpt from an institutional research note written by Hedgeye Retail analysts Brian McGough and Alec Richards. To access our institutional research please email


A Paradigm Shift In Retail Is Happening - z retail


Today’s 60bp negative revision for January Retail Sales (from +0.2 to -0.4%) was obviously disappointing, albeit not terribly surprising to anyone listening to retail conference calls over the past four weeks...


Let’s step away from the obvious for a minute and look at a powerful trend that’s actually investable...


Today, e-commerce accounts for 7.3% of total Retail Sales. A decade ago that number was 2.5%, and five years ago it was 4.4%. At face value we’re talking really small numbers…right? Not really. Consider this…in the fourth quarter, e-commerce accounted for 65% of all incremental Retail Sales


A Paradigm Shift In Retail Is Happening - retail sales 22 

That’s S-I-X-T-Y F-I-V-E percent! This ramped from 23% a year ago, and 45% in the prior quarter.



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A Preview of Super Tuesday... & Sizing Up Democratic Defections

Takeaway: What to watch on the election 2016 campaign trail.

Below is a brief excerpt from Potomac Research Group Chief Political Strategist JT Taylor's Morning Bullets sent to institutional clients each morning.



A Preview of Super Tuesday... & Sizing Up Democratic Defections - hillary another


Tonight's results will likely determine whether the Republican race goes on, or if Donald Trump becomes the prohibitive frontrunner heading into Cleveland -- today's significance to Democrats, however, may have been overlooked by comparison. Having flexed his muscle in MI, Bernie Sanders will look to replicate his win in the analogous states of IL, MO, and OH. Conventional wisdom holds that Hillary Clinton is on track for easy victories in both NC and FL, due in part to overwhelming support among African American voters. If Sanders carries all or a combination of IL, MO, and OH, or scores an upset in FL, the Dem race would face an upheaval and call Clinton's frontrunner status into serious question.



A Preview of Super Tuesday... & Sizing Up Democratic Defections - cruz cruz


Trump could run the table in all five states tonight, but Ted Cruz is banking on picking off a state or a sizeable number of delegates tonight, and will continue his campaign no matter the results.  With the potential elimination of Marco Rubio and/or John Kasich, Cruz's long-awaited dream of a one-on-one with Trump appears almost at hand. He can afford to look past tonight's votes and is the only one who has made ad buys in post-March 15th states, having already purchased $200,000 worth of airtime in AZ -- but will bump up against Trump, who is sure to benefit from Gov. Jan Brewer and Sheriff Joe Arpaio's endorsements in the state. Cruz's team has their sights on sweeping all of the delegates in the closed-caucus state of Utah (March 22nd), and putting WI in play on April 5th.  As we've said, the primary calendar gets tough for Cruz from here on out. He's now primarily competing to be the plausible alternative to Trump at a contested convention in Cleveland.



The industrial heartland of Ohio is seeing large numbers of Democrats changing their registration to Republican, with the apparent motivation being Trump's anti-free trade campaign rhetoric. In Mahoning County alone there were over 7,000 early votes cast as of March 3rd, with the Youngstown Vindicator reporting that 14% were Democratic crossovers. This much-discussed shift of blue-collar Dems to Trump would provide him with a major boost across the Rust Belt should it actually materialize.

Failure? A Look At The BOJ's Negative Interest Rate Experiment

Takeaway: Since the Bank of Japan announced negative interest rates, the Yen is up and Nikkei is down. The exact opposite of its intentions.

It was inevitable. But it's finally happening. The belief system that central bankers can bend and smooth economic gravity ... it's breaking down. 


In case you missed it, back in February, Hedgeye CEO Keith McCullough wrote an Early Look entitled, "The Big Bang Theory" (we unlocked it). He posited that the entire central-market-planning belief system/edifice could implode. What would happen if macro markets no longer believed in the potency of central planners at the Fed, BOJ and ECB? What if currencies actually went up ... and stocks went down in response to central bank easing?


Well, that's what's happening in Japan right now. Look at the chart of the USD/Yen since the BOJ pursued negative interest rates in January. 


Failure? A Look At The BOJ's Negative Interest Rate Experiment - usd jpy


This morning, the BOJ downgraded its view of the economy, but held interest rates at minus 0.1% and kept asset purchases at a pace of Y80tn a year. Here's analysis from McCullough in a note sent to subscribers:


"If you’ve been bearish on the #BeliefSystem (central-market-planning) breaking down in Japan alongside us, congrats – Japanese stocks failed @Hedgeye TREND resistance overnight as the Yen popped (again) on a BOJ statement day. The Nikkei is down -0.7% to -10% for the year-to-date. It is not clear how the bulls could be trumpeting losing money year-to-date."


The Nikkei is down -2.3% since the BOJ announced NIRP.

Failure? A Look At The BOJ's Negative Interest Rate Experiment - japan nikkei


So where do we go from here?


We'll say it again. The biggest market risk is believing central banks' economic forecasts.

Builder Confidence | Past-Peak

Takeaway: Builder sentiment holds at 9-month lows while forward expectations continue their plunge from 75 in October 2015 to 61 in March 2016.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.


Builder Confidence | Past-Peak - Compendium 031516


Today's Focus: March NAHB HMI (Builder Confidence Survey)

Builder Confidence in March was static at 58 against unrevised February estimates, holding at 9-month lows and marking a 5-month past the cycle peak of 65 recorded in October.


Across the Survey Indicators, Current Sales held flat at 65 while the -3pt decline in Forward Expectations was offset by a +4pt gain in Current Traffic.  Geographically, the West and Midwest regions were flat sequentially with +1pt and +2pt gains in the Northeast and South, respectively. 


Top-down, falling mortgage rates and an ebb in market volatility helped offset the prevailing reality that demand is slowing, supply remains constrained and labor and lot supply issues remain unlikely to resolve in the near-term. 


Commentary was largely generic with a nod to continued consternation around lots and labor and the broadly positive fundamental backdrop:


NAHB Chairman Ed Brady:  “Confidence levels are hovering above the 50-point mid-range, indicating that the single-family market continues to make slow but steady progress.  However, builders continue to report problems regarding a shortage of lots and labor.”


And from NAHB Chief Economist David Crowe:  “While builder sentiment has been relatively flat for the last few months, the March HMI reading correlates with NAHB’s forecast of a steady firming of the single-family sector in 2016.  Solid job growth, low mortgage rates and improving mortgage availability will help keep the housing market on a gradual upward trajectory in the coming months.”


In short, nothing particularly remarkable in the March release as Builder Confidence remains past peak and the larger demand trend across both the new and existing markets remains one of deceleration. 


Looking to February Housing Starts data tomorrow, we expect the number to be strong from a rate-of-change perspective as we lap the depressed, severe weather comps from last February – for reference, even if we were flat with the disappointing January numbers, Starts would be up >+22% year-over-year given the base effect.  Similar comp dynamics exist for March as well.  We’ll get EHS for February on Monday and expect sales to be down sequentially and slowing on a year-over-year basis as the trend in closed activity recouples lower to the trend in Pending Home Sales.  



Builder Confidence | Past-Peak - HMI LT


Builder Confidence | Past-Peak - Builder vs Consumer Confidence


Builder Confidence | Past-Peak - HMI Sub Indices


Builder Confidence | Past-Peak - Housing Confidence Builder vs Consumer


Builder Confidence | Past-Peak - NAHB Regional


Builder Confidence | Past-Peak - Starts total   SF Seasonal Highlight




About the NAHB HMI:

The Housing Market Index (HMI) is based on a monthly survey of NAHB members designed to take the pulse of the single-family housing market. The monthly survey has been conducted for 30 years. The survey asks respondents to rate market conditions for the sale of new homes at the present time and in the next 6 months as well as the traffic of prospective buyers of new homes. The HMI is a weighted average of separate diffusion indices for these three key single-family series. The HMI can range from 0 to 100, where a value over 50 implies conditions are, on average, improving, a value below 50 implies conditions are worsening, and an index value of 50 indicates that the housing market is neither improving nor worsening.




Joshua Steiner, CFA


Christian B. Drake


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