Sterne Agee Says Salix Pharmaceutical Accounting Concerns Are 'Overdone'

Sterne Agee commented on Salix Pharmaceuticals, Ltd. SLXP Tuesday with analyst Shibani Malhotra suggesting that “accounting concerns may be overdone.”

Malhotra noted, “Post last month’s disclosure by Salix management that inventory levels for key products were closer to nine months than the previously stated roughly three months, the stock has lost 27.3 percent in market cap. This has been driven in part by investor fear that there is "another shoe to drop" and that an earnings restatement will be required.

“We have sifted through the company’s disclosures and conducted a back of the envelope analysis of historical wholesaler inventory levels since 2010 that leads us to believe that these levels have been consistently high, suggesting that historical earnings may indeed be accurate, while management’s prior characterization of the situation was likely misleading.”

According to Malhotra, “Overall inventory levels have consistently ranged from five months to as high as over nine months every quarter since 2010. Most important, our analysis found that inventory levels at Salix have consistently been elevated since 2010 and show no significant period of a ramp in months' inventory.”

The analyst note also concluded that “revenue recognition has likely been appropriate.”

The firm maintained a Buy rating and $130 price target.

Salix Pharmaceuticals closed Monday at $101.59, down 1.07 percent.