Deutsche Bank On Pharmacyclics: 'We Do Not See Much Upside'

In a report published Wednesday, Deutsche Bank analyst Robyn Karnauskas downgraded

to Hold, while raising the price target from $205 to $235. The downgrade followed a Bloomberg report mentioning that Johnson & Johnson

and Novartis AG

may be interested in acquiring the company for about $15 billion. In the report, Deutsche Bank noted, "From our current TP of $205 we get to $226/sh by reducing the discount rate to 8% (from 8.5%) and reducing the tax rate to 20% (JnJ's current assumed tax rate). A 15% tax rate adds am add; $13/sh to the DCF (or $239/sh)." "Every addl $1 billion in sales adds $30-35/sh to the DCF, we see a large co like JNJ or Novartis as potentially expanding the mkt beyond what we model," Karnauskas explained. "Each 10% improvement in SG&A adds $2/sh to the DCF. We don't think that an acquirer can cut expenses much because the co is expected to have a good margin profile in our model," the analyst added. "Using our range of $226/261/sh take out value could be $17.6-$20.4B," Karnauskas said, while adding that the hike in TP and downgrade in rating was "because we do not see much upside from current valuation at $221/sh."