Why Endo Health Solutions Inc. Shares Slumped

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 Endo Health Solutions Inc (NASDAQ: ENDP  ) sank 3% today after Cantor Fitzgerald downgraded the specialty health-care company from "hold" to "sell."

So what: Along with the downgrade, analyst Irina Rivkind lowered her price target to $43 (from $54), representing about 36% worth of downside to the previous close. While momentum traders might be attracted to Endo's share-price surge in recent months, Rivkind believes that Mr. Market is expecting far too much operational improvement at this point. 

Now what: Cantor expects Endo's Q4 to top estimates, but sees the current valuation as pretty steep. "[W]e believe that the company may be unable to make further significant SG&A cuts beyond 2014 unless it divests AMS, especially as it faces the launches of three new promotionally sensitive products (Aveed, BEMA Buprenorphine, and Zecuity)," noted Cantor. "In this way, the Endo business model differs from Valeant's, which is a vulnerability, in our view."

When you couple those concerns with the stock's red-hot run of late, waiting for a wider margin of safety seems prudent.

A more compelling pick for 2014
The market stormed out to huge gains across 2013, leaving investors on the sidelines burned. However, opportunistic investors can still find huge winners. The Motley Fool's chief investment officer has just hand-picked one such opportunity in our new report: "The Motley Fool's Top Stock for 2014." To find out which stock it is and read our in-depth report, simply click here. It's free!


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2781558, ~/Articles/ArticleHandler.aspx, 4/16/2014 3:45:36 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement