Endo's Selloff An 'Overreaction,' Nomura Says

Nomura’s Shibani Malhotra maintained a Buy rating on Endo International plc - Ordinary Shares ENDP, with a price target of $80.

Overreaction To Minor Update

Malhotra believes that the selloff in the stock, following a “minor update” by the company was an overreaction.

“At a competitor's conference last week Endo provided an updated 1Q16 outlook, marginally reducing revenue and EPS expectations,” Malhotra mentioned.

Following the increased visibility into business trends, Endo International now expects17-18 percent contribution to its 2016 EPS in 1Q16, which implies EPS of $1.02-$1.08, meaningfully below the consensus expectation of $1.15.

Consensus Expectations Too High

Although the below consensus guidance could have led to investor concerns, the analyst believes that the consensus expectations “should not have been that high as Endo had already guided for 1Q16 EPS to account for ~18 percent of 2016 EPS at the mid¬point of the $5.85-¬$6.20 guidance range.”

At the same time, Malhotra did point out that the 1Q16 update represented a marginally weaker outlook than earlier expected and was likely to impact investor sentiment, especially against the backdrop of the recent weakness across the sector.

“However, following our recent management meetings, we continue to believe that Endo's underlying growth drivers remain intact and do not believe fundamentals are fairly reflected at current levels,” the analyst added.