Merrill Upgrades King Pharmaceuticals to 'Buy'

Analyst Gregory Gilbert is pleased with the drug maker's return to profit, and its efforts to manage inventory

Merrill Lynch upgraded King Pharmaceuticals (KG ) to buy from neutral.

On Thursday the company returned to profit. It posted 32 cents fourth-quarter earnings per share (excluding special items), and CEO Jefferson Gregory announced his plan to retire. Analyst Gregory Gilbert say he sees multiple expansion in 2004.

Gilbert notes the potential progress with the Securities and Exchange Commission, which has been investigating the drug maker's marketing and pricing practices. He says King has taken the right steps to better manage and communicate its inventory situation, which had concerned investors.

Gilbert expects new management to focus more on R&D, which is needed. He believes investors will give new management the benefit of the doubt when it comes to assessing the risks facing the company. Gilbert sees $1.45 2004 earnings per share, and $1.68 2005 (GAAP). He has a $25 target.

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