In a new report, Wells Fargo analyst David Maris slams Underperform-rated Valeant Pharmaceuticals Intl Inc VRX 1.05% because of a number of unanswered questions surrounding its business and balance sheet. After a horrendous several months, Wells Fargo is bullish on specialty pharmaceutical stocks as a whole, but Valeant is a strong exception.

In his report, Maris uses a balance sheet analysis technique called the Altman Z-score model, which was developed by Edward Altman in the 1960s as a way to measure the probability of bankruptcy.

According to Maris, an Altman Z-score below 1.8 is a signal of financial distress, and Valeant’s Altman Z-score has been below this threshold for each of the last five years. Valeant’s current score is only 0.79, which suggests a bankruptcy probability of 58.4 percent.

“While the Altman Z-score may produce false positives, its predictive accuracy is greater than 70% two years prior to bankruptcy,” Maris explains. “Even so, we consider this ratio as a signal for further questioning.”

In addition to Valeant, Wells Fargo used…

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