Wrong Divergence

As JG himself would say, "Sheesh!"

After my MFI portfolio climbed from a $20,000 deficit to pass the Russell 3000 benchmark over the past 5 months, I was very excited. With PNCL going up 55% before Christmas, I finally passed the benchmark. Alas, I have slid back down. I now trail by about $3,000 after a mediocre day today. Oh well, tomorrow is another day... as Charlie Brown knows, the sun will come up again.

In other news, VPHM projected sales for 2007 today. Not a blow out, but decent numbers (ViroPharma Provides Financial Outlook for 2007). Here is what they said:

Looking ahead in 2007

ViroPharma is commenting upon future guidance for the year 2007 as a convenience to investors. The following elements of guidance provided by ViroPharma are projections, based upon numerous assumptions, all of which are subject to certain risks and uncertainties. For a discussion of the risks and uncertainties associated with these forward-looking statements, please see the Disclosure Notice below.

    - Net product sales are expected to be $195 to $205 million;

  - Gross margin rate for Vancocin is expected to exceed 90 percent;

  - Research and development (R&D) and marketing, general and administrative
    (MG&A) expenses, excluding the impact of SFAS 123R, are expected to be
    $60 to $72 million.

Hmm, what does this mean? If we say 200m of sales, that would mean 180m after expenses. Then $66 m of R&D and MG&A gets you to $114m of income before taxes. In the past 12 months, they had about $149m of revenues and cost of revenue of about 21%. So going forward the cost of revenue is decreasing from 21% to under 10%. The flip side is that their expenses are going from about $40m to $66m. If we assume a tax rate of 33%, VPHM would make $84 m in 2007. Hmmm, I figure that would work to about $1.15 to $1.20 in 2007. Not bad for a $14.42 stock that'll make 90 cents in 2006. We'll see what the pros think tomorrow.