Thomas Weisel Cuts King Pharmaceuticals Outlook

Analyst Donald Ellis says ongoing concerns, including an SEC investigation, justify the stock's discount to peers

Thomas Weisel cut its estimates on King Pharmaceuticals (KG ).

On Tuesday the drugmaker posted 33 cents first-quarter earnings per share. Analyst Donald Ellis says first-quarter earnings per share missed his 37 cents estimate; he thinks 6 cents came from lower-than-expected selling, general, and administrative costs, and lower R&D. He says the 78% gross margin was 118 basis points below his estimate; the the 36% operating margin were 246 basis points under his estimate; and the 22.9% net margin was 202 basis points below his expectations.

Ellis cited fundamental issues, including an SEC investigation, class action lawsuits, slowing growth, and a minimal R&D pipeline. These problems justify King's discount to peers. He cut the 45 cents second-quarter earnings per share estimate to 36 cents, and cut the $1.86 2003 estimate to $1.55. Ellis also trimmed the $455.4 million second-quarter revenue estimate to $358 million, and cut the $1.78 billion 2003 revenue estimate to $1.49 billion. He's keeping his peer perform rating on the shares.

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