Given the hype that surrounds a potential downturn right now, it does well to keep a close eye on your stock performance. The Smart Portfolio includes a useful feature which pulls up all the stocks at risk in your portfolio at any one time. The alert pops up if an analyst publishes a sell rating on one of your tracked stocks, or the share price crashes.
Recently all 3 stocks displayed below, which have an overall bullish sentiment from the Street, have received rare sell ratings from top analysts. These lone bears have issued sell ratings on Eli Lilly & Co; Eagle Pharmaceuticals and Facebook. The ranking shows these analysts are worth listening to- indeed Irina Rivkind Koffler of Mizuho Securities has an 117% average return on EGRX stock!
Now let’s dig down and discover why these 3 stocks are at risk:
1. Eli Lilly & Co (LLY)
Eli Lilly & Co (NYSE:LLY): this global pharma has just received its sole sell rating. If we click on the stock ticker in the ‘My Holdings’ page, we can see that the sell rating is from BMO Capital’s Alex Arfaei. And it’s not just the stock rating, Arfaei also has the lowest analyst price target on the stock of just $71 which comes in at a -15% downside from the current share price. Compare this to most analyst price targets of $90-$100 and we can see just how much this analyst stands out from the crowd.
So, crucially, what is making Arfaei so concerned? He says: “Given ongoing headwinds faced by Lilly’s mature franchises, particularly the diabetes franchise, we doubt Lilly can deliver on its revenue growth guidance (2015-2020E CAGR of 5%).”
In particular, the analyst warns that strong near-term momentum of LLY’s diabetes medication Trulicity may be unsustainable. He comments “Following SUSTAIN-7, we believe Novo’s Semaglutide will be a formidable competitor in the GLP-1 class for Trulicity.” Also on the horizon is expected biosimilar competition for Humalog (from Sanofi’s Admelog in 2019). As a result, BMO Capital’s diabetes franchise forecast is 11% ($1 billion) lower than consensus in 2019.
2. Eagle Pharma (EGRX)
Eagle Pharmaceuticals (NASDAQ:EGRX) is focused on developing injectable products, primarily in critical care, orphan diseases, and oncology. The stock received its first sell rating in the last 3 months from top Mizuho Securities analyst Irina Rivkind Koffler on September 6. In fact, the bearish sell rating came with a price target raise to $44 from $40 due to Eagle’s switch to Non-GAAP reporting. However, the new price target still represents a big downside from the $60 current share price and EGRX’s three-month high of $83.
According to Koffler it is “a struggle to assign value to Eagle’s pipeline”. And as a result she concludes that, “we still view shares as overvalued and see a significant degree of risk to Eagle’s pipeline unlike more bullish investors. We reiterate our Underperform rating.” Most notably, Koffler is skeptical that Eagle will be able to generate the required data for its Ryanodex exertional heat stroke program (EHS), and also in drug-induced hyperthermia. She also believes that Faslodex faces significant execution hurdles and may not make it to market before generic versions in March 2019.
3. Facebook (FB)
Social media giant Facebook (NASDAQ:FB) may be an unexpected addition to an article about stock warnings. But on September 6, top Pivotal Research analyst Brian Wieser pulled no punches with his Sell rating on the stock and $140 price target. Not only does the price target significantly undercut the average analyst price target of $192, it also stands at a -18% downside from the $170 current share price.
“Facebook is establishing itself as a destination for premium video content, and demonstrating a willingness to pay significant amounts of money for that content… However we think the primary winner of Facebook’s expansion in video will be third party measurement firms, including Nielsen and comScore” says Wieser. He believes that large advertisers will require FB to use third-party measurement companies to assess the efficacy of its video advertising.
Such steps are required because “measurement issues at Facebook have been top-of-mind for many of those same marketers over the past year given revelations around over-stated average video viewing time, video viewing completions, miscalculations of organic page reach and other data which impacts how budgets are planned.” Only last week an Australian trade publication AdNews made the sensational discovery that that Facebook claims to reach 1.7mm more 16-39 year-olds in Australia than exist in the country according to its census bureau.
Crucially, Wieser is a very interesting analyst to listen to on FB stock because of his impressive track record. Across his 24 FB ratings he has a 92% success rate and 31% average return. He first downgraded his buy rating in February, and then again to sell at the end of July.
