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Why NPS Pharmaceuticals, Inc. Shares Slipped

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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Comments from our Foolish Readers

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  • Report this Comment On February 19, 2014, at 2:32 PM, faosto wrote:

    Seriously? You hone in on Jefferies sole downgrade to hold while failing to mention two price target upgrades with buy ratings - Needham to $46 and Wedbush to $47 - on the same day? What kind of a reporter are you, other than a short one?

    Here's a post I made on another site:

    "Jefferies, whose calls I normally respect, believes that 2014 Gattex sales and Natpara expectations are priced in already. They have a target of $38. I couldn't disagree more. My estimates for Gattex/Revestive are $160 million in 2014, $375 million in 2015, and royalties of $150 million/$200 million. Plus $5 million in 2014 for Natpara, and $150 million in 2015. That's total revenue of $315 for 2014, and $725 mill in 2015. With so much upside left after 2015, (worldwide sales for Gattex/Natpara should reach $2-3 billion), I think NPSP will be trading at least at 12X-15X revenues by YE 2015, or at $85-$107 per share. (Look at Alexion trading at 17X revenues!) Another way to look at it is that by YE 2015 NPSP should be making north of $2-$2.50 per share, and if you give that at 40-50X multiple for growth, you get to the same place. The added bonus is that the likelihood that a large player will buy out NPSP between now and YE 2015 is at least 50%, so that return of $47-$70 could happen a lot sooner. The other analysts that have the target closer to $50 are more accurate right now IMHO.

  • Report this Comment On February 20, 2014, at 10:18 PM, Corsair3117 wrote:

    Although I may quibble a bit on the generous growth multiple poster Faosto assigns NPSP, I think his estimates of individual drugs are on the money, and the absolute ignoring of the very real possibility of a buy out by a heady major player makes the Jeffries downgrade problematic at best. To ignore the upgrades offsetting it raise questions about the writer's grasp of easily attained facts and/or his strong rooting interest on the short side

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