Why Salix Pharmaceuticals (SLXP) Stock Is Soaring Today

NEW YORK (TheStreet) -- Shares of Salix Pharmaceuticals (SLXP) are up 10.79% to $154.19 after it was reported that Allergan (AGN) approached the company and at least one other firm about a potential acquisition, as it seeks to fight off a $53 billion hostile takeover from Valeant Pharmaceuticals  (VRX)  , sources told the Wall Street Journal.

It isn't clear where any talks with Salix stand, but one source said Allergan could strike a takeover deal with the company or another unknown party as early as next month.

Salix, which has a market value of $8.8 billion, is in the process of merging with a unit of an Italian company, Cosmo Pharmaceuticals. The approximate $2.6 billion deal would move the North Carolina company's domicile abroad -- one of a slew of recent so-called inversion deals aimed at least in part at lowering taxes, according to the Journal.

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If Allergan were to proceed with a takeover of Salix, it's not clear whether Allergan would also buy Cosmo, or whether such a deal would itself be an inversion, the Journal said.

Shares of Allergan are up 3.17% to $160.54.

TheStreet Ratings team rates SALIX PHARMACEUTICALS LTD as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:

"We rate SALIX PHARMACEUTICALS LTD (SLXP) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

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

  • SLXP's very impressive revenue growth greatly exceeded the industry average of 4.5%. Since the same quarter one year prior, revenues leaped by 62.2%. 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.
  • Compared to its closing price of one year ago, SLXP's share price has jumped by 96.21%, exceeding the performance of the broader market during that same time frame. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
  • SALIX PHARMACEUTICALS LTD has experienced 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 increased its bottom line by earning $2.14 versus $1.01 in the prior year. This year, the market expects an improvement in earnings ($6.16 versus $2.14).
  • The gross profit margin for SALIX PHARMACEUTICALS LTD is rather high; currently it is at 62.69%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, SLXP's net profit margin of 0.85% is significantly lower than the industry average.
  • 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 84.4% when compared to the same quarter one year ago, falling from $21.00 million to $3.28 million.
  • You can view the full analysis from the report here: SLXP Ratings Report
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