Watson Pharmaceuticals Inc. Stock Buy Recommendation Reiterated (WPI)

NEW YORK (TheStreet) -- Watson Pharmaceuticals (NYSE:WPI) has been reiterated by TheStreet Ratings as a buy with a ratings score of A. The company's strengths can be seen in multiple areas, such as its robust revenue growth, impressive record of earnings per share growth, compelling growth in net income, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

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Highlights from the ratings report include:

• WPI's very impressive revenue growth greatly exceeded the industry average of 5.4%. Since the same quarter one year prior, revenues leaped by 75.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
• WATSON PHARMACEUTICALS INC has improved earnings per share by 19.4% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, WATSON PHARMACEUTICALS INC increased its bottom line by earning $2.07 versus $1.50 in the prior year. This year, the market expects an improvement in earnings ($5.76 versus $2.07).
• The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Pharmaceuticals industry. The net income increased by 21.0% when compared to the same quarter one year prior, going from $45.30 million to $54.80 million.
• The current debt-to-equity ratio, 0.37, is low and is below the industry average, implying that there has been successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.77 is somewhat weak and could be cause for future problems.
• 42.00% is the gross profit margin for WATSON PHARMACEUTICALS INC which we consider to be strong. Regardless of WPI's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, WPI's net profit margin of 3.60% is significantly lower than the same period one year prior.

Watson Pharmaceuticals, Inc., a specialty pharmaceutical company, engages in the development, manufacture, marketing, sale, and distribution of generic and brand pharmaceutical products in the United States, western Europe, Canada, Australasia, Asia, South America, and South Africa. The company has a P/E ratio of 33.1, above the average drugs industry P/E ratio of 32.9and above the S&P 500 P/E ratio of 17.7. Watson has a market cap of $8.97 billion and is part of the health care sector and drugs industry. Shares are up 16.7% year to date as of the close of trading on Wednesday.

You can view the full Watson Ratings Report or get investment ideas from our investment research center.

--Written by a member of TheStreet Ratings Staff.

TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

 

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