Roth Capital Likes Ligand, But Valuation Renders Shares 'Increasingly Speculative'

Ligand Pharmaceuticals Inc. LGND beat top-line, bottom-line and royalties estimates in its second-quarter report, and it boosted annual guidance in the process.

But one analyst sees limited opportunity for near-term growth.

The Rating

Roth Capital Partners analyst Scott Henry downgraded Ligand to Neutral but raised his price target from $172 to $250.

The Thesis

For the most part, Ligand’s business appears strong. The OmniAb platform has inspired stock growth, and Promacta and Kyprolis recorded results robust enough to merit 40- and 55-cent increases to respective 2019 and 2020 EPS forecasts.

“The company's business model of leveraging platform technologies for back end royalties is working well in the current strong market for biopharmaceuticals,” Henry wrote in a note. “Further, the risk profile is superior in the event of clinical or marketing failures. We consider LGND among the best managed companies that we cover.”

However, with the stock having nearly doubled in the last year, current valuation levels render shares “increasingly speculative.” Roth confirmed it's finished expanding the Ligand multiple at 40 times.

Price Action

At time of publication, Ligand traded down 3 percent at a rate of $239.18.

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