Analysts Weigh in on Two Falling Healthcare Stocks: McKesson Corporation (MCK) and Cempra Inc (CEMP)

McKesson Corporation

McKesson Corporation (NYSE:MCK) shares are falling nearly 22% today after the company reported disappointing results for the fiscal second-quarter and issued lackluster guidance. MCK posted EPS of $2.94, below the Street’s $3.04, and lowered its F17 guidance range by $1.10 to $12.35-$12.85, which will now likely be down vs F16.

In reaction, Leerink Swann analyst David Larsen downgraded shares of McKesson from Outperform to Market Perform, with a price target of $160, which implies an upside of 29% from current levels.

Larsen commented, “MCK reported F2Q:17 adjusted EPS of $2.94 (-11% y/y) which was well below Leerink/Consensus of $3.10/$3.04. Management also reduced F2017 EPS guidance by $1.08 at the midpoint. We are downgrading the stock to Market Perform due to deteriorating fundamentals, including: (1) a significant slowdown in brand inflation, (2) far less generic inflation, (3) a slowdown in the value of generic launches, (4) a more competitive pricing environment, (5) a business model where manufacturers are demanding more economics, (6) company specific headwinds such as RAD, and (7) a lack of transparency on earnings. Given all of these challenges we believe the stock deserves to trade at a “low-teens” multiple at best, and we believe the days of hyper-inflation beats and raises are over.”

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst David Larsen has a yearly average return of 3% and a 40% success rate. Larsen has a 2.0% average loss when recommending MCK, and is ranked #1116 out of 4188 analysts.

Out of the 18 analysts polled by TipRanks, 13 rate McKesson stock a Hold, while 5 rate the stock a Buy. With a return potential of 45%, the stock’s consensus target price stands at $179.27.

Cempra Inc

Cempra Inc (NASDAQ:CEMP) shares are tumbling nearly 16% in Friday’s trading session, after the company announced last night during 3Q16 conference call that Solithera is impacted by an Aug 2016 Import Alert placed on a Wockhardt manufacturing facility in India, which may delay NDAs under review.

Reacting was Cowen analyst Ritu Baral, which reduced his price target to $31 (from $39), while reiterating an Outperform rating on the stock.

Baral commented, “We conservatively expect the Wockhardt material will be removed from the NDA and replaced with Uquifa data. This is despite successful Ph3s conducted with Wockhardt material, which may neccessitate biochemical batch-to-batch equivalence validation. More concerning is the status of stability testing data from Uquifa product, given final scale up has not yet occurred. We believe 6-month stability on final commercial product is needed for a complete CMC module. Since the Uquifa site has been conducting “manufacturing activities” since 2Q14 we think CEMP may be able to submit preliminary equivalence data to FDA, a major amendment that could trigger a 3 month PDUFA delay (which could lower the chances of an outright CRL).”

As usual, we like to include the analyst’s trackrecord when reporting on new analyst notes. According to TipRanks, analyst Ritu Baral has a yearly average return of 3.7% and a 37% success rate. Baral has a 22.7% average return when recommending CEMP, and is ranked #678 out of 4188 analysts.

Out of the 11 analysts polled by TipRanks, 9 rate Cempra stock a Buy, while 2 rate the stock a Hold. With a return potential of 78.5%, the stock’s consensus target price stands at $32.83.

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