Salix Pharmaceuticals Ltd. Stock Upgraded (SLXP)

Editor's Note: 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.

NEW YORK (TheStreet) -- Salix Pharmaceuticals (Nasdaq:SLXP) 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, good cash flow from operations and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

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Highlights from the ratings report include:

• The revenue growth greatly exceeded the industry average of 3.6%. Since the same quarter one year prior, revenues rose by 26.6%. 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.
• Net operating cash flow has significantly increased by 113.43% to $65.03 million when compared to the same quarter last year. In addition, SALIX PHARMACEUTICALS LTD has also vastly surpassed the industry average cash flow growth rate of -45.59%.
• The gross profit margin for SALIX PHARMACEUTICALS LTD is currently very high, coming in at 86.60%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 8.93% trails the industry average.
• SALIX PHARMACEUTICALS LTD has exprienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from 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, SALIX PHARMACEUTICALS LTD turned its bottom line around by earning $1.46 versus -$0.51 in the prior year. This year, the market expects an improvement in earnings ($3.19 versus $1.46).
• Currently the debt-to-equity ratio of 1.63 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Despite the company's weak debt-to-equity ratio, the company has managed to keep a very strong quick ratio of 4.24, which shows the ability to cover short-term cash needs.

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Salix Pharmaceuticals, Ltd. acquires, develops, and markets prescription drugs and medical devices used in the treatment of various gastrointestinal diseases in the United States. The company has a P/E ratio of 36.1, above the S&P 500 P/E ratio of 17.7. Salix has a market cap of $2.72 billion and is part of the health care sector and drugs industry. Shares are up 14.1% year to date as of the close of trading on Friday.

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

-- Written by a member of TheStreet Ratings Staff

Editor's Note: 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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