Why Cubist Pharma Is Poised to Pull Back

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Cubist Pharmaceuticals (NASDAQ: CBST  ) opened Thursday down 2% after Wedbush downgraded the drug developer from "outperform" to "neutral."

So what: Along with the downgrade, analyst Gregory Wade reaffirmed his price target of $65, representing just 3% worth of upside to yesterday's close. While momentum investors might be attracted to the stock's solid year-to-date return, Wade believes the appreciation potential remains limited given Cubist's lack of significant revenue and profit growth.

Now what: Wedbush sees the stock's risk/reward trade-off as pretty balanced at current levels.

"CBST's 12-18 month top-line growth prospects appear to us to face significant challenges as CUBICIN stalls, and meaningful growth (on a percentage basis) from the pipeline and acquired assets is 12+ months out," noted Wedbush. "We see no room for multiple expansion from here, as well."

With Cubist shares up about 60% from its 52-week highs and trading at a 40-plus P/E, I'd agree that upside looks somewhat limited. 

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