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 (NASDAQ:ENDP) are largely holding on to yesterday's big gain after Cantor Fitzgerald upgraded the specialty health-care company from "sell" to "hold."
So what: Along with the upgrade, analyst Irina Rivkind boosted her price target to $54 (from $30), representing about 4% worth of downside to Wednesday's close. While value investors might be turned off by yesterday's 30% share-price spike -- fueled by the $1.5 billion acquisition of Paladin Labs -- Rivkind believes that Endo's risk profile is looking better given its strong operating momentum, and the Paladin deal's synergistic benefits.
Now what: Cantor Fitzgerald remains cautious about Endo's appreciation prospects. Rivkind noted:
We still think that management's guidance is too low for 4Q:13 (implying revenues of only $560-610M) which may unexpectedly happen with significant Lidoderm destocking and/or returns reserves, in our view. Post-Paladin Labs announcement, we are upgrading to HOLD and raising our price target to $54, which we believe represents the best-case scenario (encompassing M&A expectations) for the company.
With Endo shares now up about 125% from their 52-week lows, I'd agree that much of the deal's upside seems baked into the valuation already.