Watch Out Below, Endo International Investors, Management Is Doubling Down On Weak Assets

• In a report issued Monday, Mizuho’s Managing Director and Senior Analyst Irina R. Koffler downgraded Endo International plc - Ordinary Shares ENDP from Buy to Neutral.
• The expert trimmed her price target on the stock from $82 to $55, worried about Endo's branded business and pipeline.
• Shares of Endo were trading down more than 2.6 percent on Monday.

Endo recently reported a disappointing third quarter. After the report, the stock sold off, and Mizuho analysts assured they are not expecting it to recover any time soon.

However, it’s valuation and concerns regarding “persistent weakness in the branded business, and lack of defensiveness in generic stocks” that led the firm to downgrade the stock to Neutral. The new price target, was based on an updated valuation methodology, which takes into account the fact that Mizuho’s “defensive generics thesis has not played out, and generic stocks are trading down in line with the overall sector.”

Doubling Down On Weak Assets

The report went on to look into the management’s “poor commercial assessment decisions during its past M&A due diligence process.” The experts now “lack conviction in future improvement.”

They noted the company “is trying to put a positive spin on its weak franchises in urology and pain, as well as its risky Xiaflex pipeline.” However, the firm is not modeling meaningful growth from Xiaflex in its current indications. Expectations are also low for Endo’s long-acting testosterone products.

Regarding its pain portfolio, “management noted that the Belbuca ramp could be slow due to market conditions and also because the drug requires titration. The company continues to announce new R&D initiatives for Xiaflex in non-core therapeutic areas which may be dilutive,” the analysts said. They pointed out that Endo's disappointing international segment is expected to remain feeble into 2016.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.