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 analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of Hologic (NASDAQ:HOLX) sank 3% this morning after BTIG downgraded the medical diagnostics company from buy to neutral.
So what: Along with the downgrade, analyst Sean Lavin reiterated his price target of $26, almost exactly where the stock closed this past Thursday. So while momentum traders might be attracted to Hologic's price strength in recent months, Lavin's call could reflect a sense on Wall Street that the risks surrounding its growth trajectory are being largely overlooked.
Now what: According to BTIG, Hologic's risk/reward trade-off isn't too attractive at this point. "Several months ago, HOLX traded ~3 points below the group on an earnings basis. Now, the company trades with or above peers and has reached our $26 PT," said Lavin. "HOLX trades at ~17.6x NTM EPS vs. peers at 18.2x and due to debt has an EV/Sales of 4.3x vs. an average of 2.9x. While we do not feel shares are overvalued, we do not see valuation metrics that make sense here to offer the 15% upside required for a BUY rating." When you couple that seemingly stretched valuation with Hologic's still-hefty debt load, it's tough to disagree with BTIG's cautiousness.
Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.