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Why Endo International Shares Are Under Pressure Today

By Brian Feroldi – May 13, 2019 at 11:42AM

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Traders knock down the stock in response to an analyst downgrade.

What happened

Shares of Endo International (ENDP -5.47%), a manufacturer of generic and branded pharmaceuticals products, were down 14% as of 11:30 a.m. EDT on Monday. The slide is directly traceable to a negative research note that was published by an analyst today.

So what

Christopher Schott, an analyst at J.P. Morgan, downgraded Endo's stock today.

Schott lowered the company's rating from neutral to underweight, but maintained his near-term price target of $9 per share

One of the reasons for the re-rating is that the analysts don't believe that there are many catalysts for the company in the year ahead. Schott stated that there are simply better opportunities for investors in other stocks.

Traders sold off the company's stock in response.

Man giving the thumbs down

Image source: Getty Images.

Now what

Endo recently reported its first-quarter results, and the headline numbers were pretty good:

  • Revenue grew 3% to $720.4 million. That was ahead of the $692 million that Wall Street had predicted.
  • Net loss was $18.6 million, or $0.08 per share.
  • Adjusted net loss was $0.53. That was well higher than the $0.42 that analysts had predicted.

On the call with investors, management also stated that it is on track to meet its full-year guidance, which looks like this:

  • Revenue is expected to land between $2.76 billion and $2.96 billion. The midpoint of this range is slightly behind the $2.87 billion that Wall Street was expecting.
  • Earnings are expected to land between $2 and $2.25 per share. The midpoint here is also a smidge lower than the $2.18 that analysts were predicting.

Endo's stock is currently trading for less than four times the midpoint of this year's adjusted EPS range. That's absurdly cheap, and it speaks volumes about Wall Street's lack of confidence in this business.

Value investors might be attracted to Endo's stock at these levels, but I've learned the hard way that it is usually smart to be cautious with stocks that look unbelievable cheap. My plan is to continue to monitor Endo's progress from the safety of the sidelines.

Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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