Why NPS Pharmaceuticals, Inc. Shares Slipped

Does this analyst make a good case? Or is it just more noise from Wall Street?

Feb 19, 2014 at 2:19PM

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

What: Shares of NPS Pharmaceuticals, (NASDAQ:NPSP) slipped 1% today after Jefferies downgraded the biotechnology company from buy to hold.

So what: Along with the downgrade, analyst Eun Yang reiterated his price target of $38, representing very little upside to yesterday's close. While momentum traders might be attracted to the stock's sharp surge over the past year, Yang thinks that NPS' growth prospects, although still quite attractive, are now baked well into the valuation.

Now what: According to Jefferies, NPS' risk/reward trade-off isn't too appealing at this point. "Solid Gattex U.S. launch in 2013 and anticipation of bigger Natpara opportunity resulted in strong stock performance," noted Yang. "Now trading at ~17.2x EV/'14 revenue vs. ~16.1x for BioMarin and ~17.5x for Alexion, we view near term, potential of Gattex/Revestive and Natpara is largely priced in."

Given NPS' seemingly lofty relative and absolute valuation, it's easy to understand Jefferies' cautious stance.  

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Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends BioMarin Pharmaceutical. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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