Israel-Medical-Healthcare

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S&P downgrades Taro to Sell
about time
20.11.2005 | 09:38
Omri Cohen

Taro Pharmaceutical Industries (Nasdaq: TARO) stock has been hammered since the Israeli drug company delivered weak results for the third quarter of 2005. But the third of its value that Taro lost in a night wasn't enough to keep Standard & Poor's on board. The rating agency downgraded Taro from three stars (Hold) to two (Sell), according to BusinessWeek Online.

S&P slashed its 12-month price target for the stock from $16 to $12, which is still 18% below the closing price on Friday.

First Allenby also leaped in, downgrading the stock all the way from Strong Buy to Neutral. It had started coverage of Taro just three months earlier with a particularly upbeat report.

On Thursday Taro admitted that its third-quarter net profit dived 47% against the parallel to $2.1 million or 7 cents per share, though revenues retreated only 1% to $72.5 million.

Analysts had expected revenues of $80.8 million and profits four times higher, at 28 cents per share.

Also, Taro's gross profit sank from 58.1$ of turnover to 52%.

S&P had been one expecting much better earnings, of 30 cents per share.

S&P analyst Herman Saftlas wrote that Taro's disappointing profitability was due to intense competition in the U.S. sector of generic skin ointments, which is a key market for Taro. He also believes it shows difficulty in the company's inventory management.

Moreover, S&P thinks the weak sales and profits are likely to persist for the nonce.

Saftlas therefore lowered his earnings forecast, drastically, from $1.05 per share to 60 cents ($18 million). For 2006 he lowered his earnings estimate from $1.80 per share to 70 cents, or $21 million.

http://www.themarker.com/eng/article.jhtml?ElementId=%2Fibo%2Frepositories%2Fstories%2Fm1_2000%2Foc2...

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