Why We Downgraded MDS

Article Excerpt

MDS INC. $19 (Toronto symbol MDS; Conservative Growth Portfolio, Consumer sector; SI Rating: Average) is still having problems with its drug-testing lab in Montreal, which is currently under review by the U.S. Food and Drug Administration. The company estimates that this review cut its earnings by $10 million in its third fiscal quarter ended July 31, 2006. MDS earned $0.15 a share (total $23 million) from continuing operations in the quarter, up 50% from $0.10 a share ($14 million) a year earlier. But if you exclude one-time items, per-share earnings fell 23.5%, to $0.13 from $0.17. Revenue rose 2.4%, to $377 million from $368 million. As part of a major restructuring plan, MDS has just agreed to sell its laboratory services business. That will let it focus on its three core businesses: contract drug research, mass spectrometers and medical isotopes for cancer treatments. MDS will receive about $1.05 billion in cash from the sale, after it taxes and other expenses. It plans to…

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