Author Archives: Scalper1

Valeant CEO Quits As Ackman Joins Board; Ex-CFO Under Fire

Big changes were brewing at embattled drugmaker Valeant Pharmaceuticals International ( VRX ) Monday, as CEO J. Michael Pearson said he’s leaving as major shareholder William Ackman took a larger role in the company. The stock was up 9% in afternoon trading Monday. Valeant said that it had begun searching for a new CEO to replace Pearson, without specifying Pearson’s departure date. Pearson has headed Valeant for a highly transformative eight years, as a battery of acquisitions brought the company from less than $1 billion in annual revenue to more than $10 billion last year, with a policy of cost-cutting and price increases on acquired drugs making Valeant a favorite of investors but a target of criticism elsewhere. Last fall it all started to collapse, however, as a scandal relating to specialty pharmacy Philidor raised larger issues with Valeant’s accounting. In Monday’s announcement, Valeant said that the ad hoc committee that started reviewing company finances five months ago was nearing completion of its work, and Valeant will have to restate financials for all of 2014 as well as the first quarter of 2015. The statement also said that Valeant plans to file its tardy 10-K for 2015 by April 29, which will prevent it from going into credit default. The discovery of new accounting problems in addition to the Philidor-related ones delayed the filing, the company said. Meanwhile, Ackman, head of hedge fund Pershing Square Capital, will join the board in place of Katharine Stevenson. Ackman had indicated in a letter following Valeant’s d isastrous Q4 earnings report last week that he plans to take a more “proactive” role in protecting Pershing’s large investment in the company, so his joining the board was not a surprise. Valeant’s Ex-CFO Takes Heat A noteworthy development, however, was that Ackman was evidently targeting not only Pearson but former CFO Howard Schiller, who served from December 2011 until last April, when he left his CFO position but remained on the board. The Monday press release fingered Schiller and the leadership in general as the main cause of Valeant’s problems. “The improper conduct of the company’s former chief financial officer and former corporate controller, which resulted in the provision of incorrect information to the committee and the company’s auditors, contributed to the misstatement of results,” it said. “In addition, as part of this assessment of internal control over financial reporting, the company has determined that the tone at the top of the organization and the performance-based environment at the company, where challenging targets were set and achieving those targets was a key performance expectation, may have been contributing factors resulting in the company’s improper revenue recognition.” The release said that Schiller had been asked to resign from the board but refused, setting things up for even more drama in a company that’s already resembling a soap opera. Later Monday, Schiller issued a statement refuting the charges. “Contrary to the statement in the 8-K and press release, at no time did I engage in any improper conduct that relates to any restatement of revenue the company is considering,” Schiller said in the statement. “In addition, at no time did I ever provide any incorrect information to the Audit and Risk Committee or the company’s outside auditors regarding this accounting issue.” Schiller shifted responsibility to the corporate controller, who has been put on administrative leave, according to Monday’s SEC filing. He said that she was the one who evaluated the Philidor situation and decided how to account for it, and he trusted her opinion. Valeant said that, on a preliminary basis, the restatement will subtract $58 million from 2014 revenue and 9 cents from EPS. The first quarter of 2015 should lose $21 million in revenue but gain 7 cents a share in earnings, it said. Wall Street analysts have been turning against Valeant and its management with a vengeance lately, and Monday brought two more downgrades before the CEO news came out. Morningstar warned that change isn’t going to come cheap. “We currently incorporate more than $1 billion in restructuring, legal, and other charges over the next few years,” wrote Morningstar analyst Michael Waterhouse in a research note. Valeant stock rose as much as 17% in early trading on the stock market today , above 31.50, but shares also slipped a bit later and fell below 26, the stock’s lowest price since November 2010. Shares have still plummeted nearly 90% since hitting an all-time high in early August near 264.

Amazon, Google Cloud Services Price War Back On Amid Apple Loss?

A cloud computing price war pitting Google vs. Amazon Web Services could be back on amid Amazon’s customer defections, most notably Apple ( AAPL ), says Oppenheimer. The investment bank cut its price target on Amazon.com ( AMZN ) stock and lowered its AWS revenue estimates. Oppenheimer analyst Jason Helfstein forecasts that AWS will slash prices for cloud services by 10% after Alphabet ( GOOGL )-owned Google’s user conference Wednesday and Thursday. Some observers speculate that Google could cut prices for its infrastructure-as-a-service offering, in which customers rent computer servers and data storage systems via the Internet. Apple has reportedly shifted some of its iCloud business to Google from AWS. AWS is the biggest IaaS provider, followed by Microsoft ( MSFT ) and Google. Helfstein says that AWS also faces market share gains by Microsoft’s Azure cloud service. “We believe AWS will reduce prices 10%, vs. 5% previously, following this week’s Google Cloud Platform event,” wrote Helfstein in a research report. “While AWS is still far ahead of the competition in features and services, as reflected in zero price reductions in 2015, we cannot ignore recent press reports of potential client losses (Apple, Spotify and Dropbox).” The new boss of Google’s cloud business, Diane Greene, will make her debut at this week’s user conference. In November, Google acquired Greene’s startup, Bebop, for $380 million. Helfstein lowered his price target on Amazon stock to 660 from 700. He lowered 2016 and 2017 AWS revenue estimates by 4% and 11%, respectively. While AWS has been the biggest IaaS price-cutter of the last decade, Google has been aggressive since moving into the market. Google slashed prices in March 2014, October 2014 and June 2015. “With no price reductions in 2015, AWS clearly viewed itself in a very strong competitive position. However, this was out-of-sync with the historical trend of 20%-25% annual price reductions and the 45% reduction in 2014 (mostly in reaction to Google),” added the Oppenheimer analyst.

Glut Feeling: Chinese Solar Manufacturers Ignore ‘Bellwether’ Views

Chinese firms JA Solar ( JASO ), JinkoSolar ( JKS ) and Trina Solar ( TSL ) will force a solar panel glut in 2016, expanding capacity despite a 4.5-gigawatt demand cliff in Japan and the U.K., Credit Suisse analyst Patrick Jobin suggested Monday. Meanwhile, “bellwether” U.S. rooftop solar installers, including SolarCity ( SCTY ), Sunrun ( RUN ) and Vivint Solar ( VSLR ), have cut their 2016 guidance by 0.6 GW, on average vs. initial expectations, Jobin wrote. European incentives and a Chinese boom oversupplied the market in 2012, causing prices to topple and manufacturers like SunPower ( SPWR ) to cut jobs. The upcoming glut puts higher-cost solar panel makers JA Solar and Trina Solar at heavy risk, Jobin says. On their Q4 earnings conference calls, all three acknowledged a potential 2016 supply glut, but “still announced capacity expansions, citing growth from efficiency improvements and higher capacity build outside China,” Jobin wrote in a research report. Jobin cut his price targets on JinkoSolar and Trina Solar to 40 from 42, and to 14 from 15, respectively. Midday, shares of Trina Solar and JinkoSolar were both down nearly 1% in early afternoon trading on the stock market today . JA Solar stock was up a fraction. Regulators in Japan and the U.K. recently announced cuts to solar feed-in-tariffs (FiT), key subsidies that triggered a surge in solar investment. In 2016, Jobin expects Japanese and U.K. demand to slow by a respective 2 GW and 2.5 GW. In the U.S., a much-lauded extension to the Investment Tax Credit (ITC) on solar installations pushed out installation of 1 GW to 2017, Jobin wrote. Globally, manufacturers see 10 GW in solar cell capacity expansions in 2016, vs. market demand for 6.1 GW. Demand is expected to slow to 11.5% growth in 2016 vs. 17% growth in 2015, Jobin wrote. Compounding that, manufacturers expect a 5%-10% decline in second-half 2016 average sales prices. “We anticipate the need for capacity expansion outside China, especially as the ITC extension improves the long-term demand outlook in the U.S., but we believe the timing and magnitude of new capacity builds may exacerbate oversupply and pressure margins,” he wrote. Among the three companies, Jobin prefers vertically-integrated JinkoSolar, which he says keeps internal production and outside sourcing costs low. But even a 1-cent per-watt decline in gross profits could reduce JinkoSolar, Trina Solar and JA Solar’s 2016 earnings by 33%, 38% and 58%, he said.