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Salix Pharma (SLXP) Earnings Preview: Q4 Should Be Fine, 2012 Outlook Holds The Key

 February 24, 2012 03:33 PM

Salix Pharmaceuticals, Ltd. (NASDAQ:SLXP) is expected to report higher earnings and revenues when it reports its fourth-quarter results on Feb.27.

Wall Street expects the company to earn 96 cents a share, an increase of 45 percent from year-ago earnings of 66 cents a share. Analysts expect the company's quarterly revenue to grow 28.8 percent to $152.62 million, according to Thomson Reuters.

For the third quarter, the company reported earned $34.3 million or 55 cents a share, compared to a net loss of $2.7 million or 5 cents a share last year. Excluding items, it earned 77 cents a share. Total product revenue for the quarter rose to $146.2 million from $80.6 million a year ago.

[Related -Salix Pharmaceuticals, Ltd. (SLXP), Progenics Pharmaceuticals, Inc. (PGNX) Say FDA Committee To Review Relistor sNDA]

"while we're comfortable w/ Q4, consensus '12 numbers seem a bit high to us," Jefferies analyst Corey Davis wrote in a note to clients.

During the quarter, Salix completed its acquisition of privately-held Oceana Therapeutics and got two new products namely Solesta and Deflux. Solesta is being used to treat fecal incontinence, while Deflux is an alternative to major ureteral reimplantation surgery for the treatment of vesicoureteral reflux.

Meanwhile, the company's shares could move based on its guidance for 2012. The 2012 revenue is projected to be driven by Xifaxan, supported by Relistor, Solesta and Deflux. Analysts expect 2012 earnings of $2.74 a share on revenue of $728.71 million.

[Related -Salix Pharma (SLXP): FDA Approves Therapy For ART-Related Diarrhea In HIV Positive Patients]

"Should SLXP's 2012 outlook fail to bracket consensus, we think the stock could suffer. Given this scenario, we'd be buyers on weakness, as we're bullish on SLXP's prospects, especially given the emergence of a very credible pipeline," added Davis, who has a "buy" rating and $50 price target on Salix Pharma shares.

Davis said the the $50 price target represents 22 times the brokerage's 2012 EPS of $2.25, a premium price to earnings that would be justified given analyst's view that Salix Pharma could grow 20 percent plus over the next several years.

Salix Pharma focuses on treatment of gastrointestinal disorders. Its main product, Xifaxan, is an antibiotic currently approved for travelers' disease and hepatic encephalopathy (HE), which Jefferies estimate could be a $600 million plus revenue opportunity. Furthermore, Salix is seeking to expand the label of Xifaxan into IBS, which if approved, could be an additional $1 billion plus in potential revenue.

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