The Morning Brief: It Gets Even Worse for Valeant

The shares of Valeant Pharmaceuticals International suffered another big blow on Thursday, closing at an all-time low after Morgan Stanley downgraded the stock from overweight to equal weight and cut its price target from $25 to $17.

“Our thesis that Valeant’s business would stabilize and asset sales would enhance value has not materialized,” the investment bank told clients in a note. Morgan Stanley reminded clients that when it upgraded the shares in mid-August, it expected “business stabilization and material divestitures.” However, so far neither has happened, it lamented.

Morgan Stanley also expressed concern about the departure of several executives on December 12. “We no longer believe that shares can outperform,” it added.

The stock closed down another 3.70 percent on Thursday, at $13.60, dipping as low as $13 during the trading session. As a reminder, the three largest investors are Bill Ackman’s Pershing Square Capital Management, John Paulson’s Paulson & Co. and Jeff Ubben’s ValueAct Capital Management.


UBS raised its price target on hedge fund favorite Microsoft from $66 to $70 after its analyst met with several senior executives at the software giant’s headquarters.

“The overall tone was consistent with our view that MSFT’s early transition to the cloud is now paying off with improved revenue visibility and opportunities to drive significant margin expansion over time,” the investment bank told clients in a note. It added that the company is innovating “on top of a strong foundation and is now seeing clients move additional workloads to the cloud.”

UBS also says it continues to be impressed with the improvement in culture across the company as well as the company’s ability to attract and retain top talent for extended stays — “a rare find in the constantly evolving tech landscape.” Shares of Microsoft fell slightly on Thursday, to close at $62.58. At the end of the third quarter Microsoft was the fifth most widely held stock among hedge funds. In fact, it was the largest holding of ValueAct Capital.


The number of new hedge funds launched in the third quarter fell to 170, down sharply from 200 in the previous quarter and 269 in the third quarter of 2015, according to a new report from data tracker HFR. Altogether, 576 funds debuted in the first three quarters of the year, down from 785 over the same period last year.

At the same time, the number of liquidations also rose, to 252 in the third quarter from 239 in the previous quarter. In the year-ago period, there was roughly the same number of hedge funds shuttered, at 257. Altogether, 782 hedge funds shut down in the first three quarters of the year, which puts total liquidations on a pace for the highest number of liquidations since the financial crisis.

Meanwhile, there were a total of 9,925 single-manager and funds-of-hedge-funds at the end of the third quarter, the first time the total number fell below 10,000 funds since 2014.


Davidson Kempner Capital Management reduced its stake in BMC Stock Holdings to 6.4 million shares, or 9.63 percent of the provider of building products.