Why Salix Pharmaceuticals (SLXP) Stock Is Higher Today

NEW YORK (TheStreet) -- Shares of Salix Pharmaceuticals Ltd. (SLXP) are up 1.37% to $158 in pre-market trade as some of the top 20 investors are threatening to vote down a proposed deal to buy a unit of Cosmo Pharmaceuticals, and are pressing Salix to consider selling itself instead, sources told Reuters.

North Carolina-based Salix, which makes drugs for gastrointestinal disorders, said in July it would merge with Cosmo's Irish subsidiary, a deal that would allow Salix to move its tax domicile abroad in a practice known as inversion, Reuters said.

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But some Salix shareholders are unhappy with the plan and would rather see a sale to a larger drugmaker such as Actavis (ACT)  or Allergan (AGN) , sources said.

Investors holding at least a quarter of Salix shares are considering voting the deal down, sources told Reuters.

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 few notable 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, good cash flow from operations, 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 4.8%. 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.
  • Net operating cash flow has significantly increased by 121.67% to $31.47 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 -1.01%.
  • Compared to its closing price of one year ago, SLXP's share price has jumped by 115.10%, 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 ($6.17 versus $2.14).
  • The gross profit margin for SALIX PHARMACEUTICALS LTD is currently very high, coming in at 77.63%. 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, SLXP's net profit margin of 0.85% is significantly lower than the industry average.
  • You can view the full analysis from the report here: SLXP Ratings Report
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