Stock Picks: CRMT Up; ACAD Down

Bad times made for good earnings at America's Car Mart (CRMT), which beat Wall Street estimates for its fiscal first quarter pushing shares 11.6% higher in midday trading Tuesday.

The Bentonville, Ark.-based company, which operates 96 used car dealerships in eight states, reported earnings of 60 cents a share for the quarter ended July 31, up from 45 cents a share a year ago. Wall Street analysts, on average, expected earnings of 41 cents a share. Same-store sales rose 8.5% for the quarter, while the provision for credit losses declined to 19.5% of sales compared to 20.9% in the same period last year.

"W]e were able to achieve the sales gains this quarter while at the same time continuing to not only maintain but significantly improve our delinquency and credit loss metrics," Chairman Skip Falgout said in a Tuesday conference call.

On the call, David Burtzlaff, an analyst with Stephens, raised concerns that the government's "cash for clunkers" program would pose difficulties for the used-car dealer as it sought to maintain inventory.

"We've actually increased our inventory," CEO Hank Henderson said. "I think to anybody who drives by any Car-Mart location today, inventory looks as good as it ever has, well stocked and we have a good mix and as discussed pretty thoroughly, we're very pleased that we're keeping the cost about where we need to on that so no, we're still doing a good job there."

Analyst Bill Armstrong with C.L. King & Associates said a rise in loan modifications was a source of concern, but Henderson said the company's focus was on customer retention and working with people who might have trouble making payments.

"Actually, we saw a pretty significant decrease in modifications this quarter versus the first quarter of last year, so we're very pleased with the efforts in place to minimize modifications," Henderson said.

Bottom Line: Hold
Some of Tuesday's price pop may be due to short sellers expecting worse results and higher delinquency rates. America's Car Mart should do well because even in tough times, the car is so vital to the economic life of the American household.

Investors unloaded shares of Acadia Pharmaceuticals (ACAD) in a hurry Monday after the drug developer said its late-stage trial of a drug that treats Parkinson's-related psychosis failed to produce the desired results. Shares plunged 68% in early Tuesday trading.

The drug, called pimavanserin, was being co-developed with Canadian pharmaceutical company Biovail (BVF). A second clinical study is still in progress.

"While we obviously are disappointed with the results of this Phase III study, we continue to believe in the potential of pimavanserin based on our clinical experience to date,” Acadia chief executive Uli Hacksell, said in a prepared statement. “We will thoroughly analyze these data along with the data on other secondary and exploratory endpoints over the next month to better understand the outcome of this study."

Had the trial been successful, Needham & Co. analyst Alan Carr says Acadia and Biovail would have tried to apply the drug to patients with Alzheimer's-related psychosis, a much larger market. About 5 million Americans have Alzheimer's, and as many as half of them suffer from some form of psychosis. Of the estimated 1.1 million Parkinson's sufferers, as many as 30% suffer from some form of psychosis.

"It's pretty apparent that it's not going to have an impact on Parkinson's disease," Carr says, "And I think it's unlikely they'll keep that second trial going after they finish their analysis."

Ted Tenthoff, an analyst at Piper Jaffray, said earlier trials of pimavanserin didn't appear promising, and that investors had been looking for the next big biotech success based partly on earlier breakthroughs by Dendreon (DNDN) and Human Genome Sciences (HGSI).

"The run-up in anticipation in this is that investors in biotech are looking for binary events," he says. "Dendreon and Human Genome Sciences have really delivered."

Bottom Line: Sell
Drug development is almost always a swing-for-the-fences type of proposition, and this drug looks like it's struck out.