Salix Pharmaceuticals Ltd. Stock Downgraded (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 downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, expanding profit margins and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income and disappointing return on equity.

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Highlights from the ratings report include:
  • The revenue growth greatly exceeded the industry average of 3.8%. 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.
  • 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 ($2.91 versus $1.46).
  • The gross profit margin for SALIX PHARMACEUTICALS LTD is currently very high, coming in at 79.60%. Regardless of SLXP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 8.90% trails the industry average.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Pharmaceuticals industry and the overall market on the basis of return on equity, SALIX PHARMACEUTICALS LTD has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Pharmaceuticals industry. The net income has significantly decreased by 51.8% when compared to the same quarter one year ago, falling from $34.28 million to $16.54 million.
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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 20, above the S&P 500 P/E ratio of 17.7. Salix has a market cap of $2.25 billion and is part of the health care sector and drugs industry. Shares are down 20.1% year to date as of the close of trading on Thursday.

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

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