Why Vivus (VVUS) Is Down Today

NEW YORK (TheStreet) -- Vivus  (VVUS) was falling 13.26% to $5.86 on Tuesday morning despite the pharmaceutical company's earnings beating expectations.

The company reported a net loss of 17 cents a share for the fourth-quarter, narrower than the Zacks consensus estimate of 43 cents and the year-ago loss of 56 cents. Revenue for the fourth quarter increased year-over-year to $44.1 million from $2 million; however, these earnings included a one-time licensing payment of about $34.8 million, or about 34 cents a share, from its erectile dysfunction drug.

Vivus beat expectations, but only did so because of the licensing payment. Analysts expected a loss of 40 cents a share and the company would have posted a loss of approximately 51 cents a share were it not for the payment.

The company also announced that its anti-obesity drug Qsymia totaled approximately 124,000 for total sales of $7.7 million for the quarter, a 14% sequential increase. Despite this, both JP Morgan  (JPM) and JMP Securities noted they do not see Qsymia gaining traction anytime soon. JP Morgan downgraded the company to "hold" from "buy," while JMP Securities reiterated its "market perform" rating.

Must Read: VIVUS Reports Fourth Quarter And Year-End 2013 Financial Results

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TheStreet Ratings team rates VIVUS INC as a "sell" with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

"We rate VIVUS INC (VVUS) a SELL. This is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income, disappointing return on equity, generally disappointing historical performance in the stock itself and generally high debt management risk."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • VIVUS INC's earnings per share declined by 20.0% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, VIVUS INC reported poor results of -$1.40 versus -$0.56 in the prior year. For the next year, the market is expecting a contraction of 33.6% in earnings (-$1.87 versus -$1.40).
  • 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 decreased by 19.3% when compared to the same quarter one year ago, dropping from -$40.40 million to -$48.20 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Pharmaceuticals industry and the overall market, VIVUS INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Looking at the price performance of VVUS's shares over the past 12 months, there is not much good news to report: the stock is down 48.14%, and it has underformed the S&P 500 Index. In addition, the company's earnings per share are lower today than the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • The debt-to-equity ratio of 1.36 is relatively high when compared with the industry average, suggesting a need for better debt level management. Despite the company's weak debt-to-equity ratio, the company has managed to keep a very strong quick ratio of 6.08, which shows the ability to cover short-term cash needs.
  • You can view the full analysis from the report here: VVUS Ratings Report

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