Cephalon Inc. Stock Upgraded (CEPH)

NEW YORK (TheStreet) -- Cephalon (Nasdaq:CEPH) has been upgraded by TheStreet Ratings from hold to buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, notable return on equity, attractive valuation levels, increase in stock price during the past year and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the ratings report include:

• CEPHALON INC's earnings per share declined by 5.7% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, CEPHALON INC increased its bottom line by earning $5.28 versus $4.40 in the prior year. This year, the market expects an improvement in earnings ($8.40 versus $5.28).
• Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
• The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Biotechnology industry and the overall market, CEPHALON INC's return on equity exceeds that of both the industry average and the S&P 500.
• The revenue growth greatly exceeded the industry average of 3.4%. Since the same quarter one year prior, revenues rose by 34.0%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.

Cephalon, Inc., a biopharmaceutical company, engages in the discovery, development, and commercialization of products for central nervous system, inflammatory disease, pain, and oncology therapeutic areas. The company has a P/E ratio of 11.2, equal to the average drugs industry P/E ratio and below the S&P 500 P/E ratio of 16.2. Cephalon has a market cap of $4.5 billion and is part of the health care sector and drugs industry. Shares are up 22.2% year to date as of the close of trading on Wednesday.

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