Why Valeant Pharmaceuticals Stock Is Jumping Today

By Todd Campbell Markets Fool.com

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Image source: Getty Images.

What happened

AfterValeant Pharmaceuticals (NYSE: VRX)reported that it's selling some of its non-core assets for more than $2 billion, shares traded up as much as 14% on Tuesday. As of 12:05 p.m. EST, shares had settled to a 5.1% gain.

So what

Valeant Pharmaceuticals shares have been battered by investigations, allegations, lowered sales and profit guidance, and the arrest of former executives on charges of illegal marketing practices. The seemingly endless stream of bad news caused the stock to tumble more than 85% in 2016; however, management's news today could indicate that the company's turning a corner.

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Specifically, Valeant Pharmaceuticals has agreed to sell Dendreon to Sanpower Group Co, Ltd., a private Chinese company, for $819.9 million in cash, and it's separately agreed to sell its CeraVe, AcneFree, and AMBI skincare brands to L'Oreal for $1.3 billion in cash.The asset sales eliminate the source of hundreds of millions of dollars in sales, but they provide much-needed cash that Valeant Pharmaceuticals can use to chip away at its more than $30 billion in debt.

Now what

Valeant's revamped C-suite is attempting to restore credibility with healthcare payers, creditors, and investors, and improving its leverage is a key component of its strategy.

While selling non-core assets like this helps give the company some more wiggle room, there's still a lot of work to do before an all-clear can be sounded. Specifically, the company needs to execute on plans to profit from its drug distribution deal with Walgreens Boots, and it needs to prove that it can deliver top- and bottom-line results that exceed expectations -- without relying heavily upon drug price increases.

Valeant's progress is likely to be slow and steady, and if creditors and investors are willing to give the company some leeway, this stock could end up rewarding investors who are willing to take on the risk. However, there's no guarantee that Valeant will successfully execute on its turnaround, so this company's stock is probably best left to only the most risk-tolerant of investors.

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Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned.Like this article? Follow him onTwitter where he goes by the handle@ebcapitalto see more articles like this.The Motley Fool owns shares of and recommends Valeant Pharmaceuticals. The Motley Fool has a disclosure policy.