Why Cubist Pharma Is Poised to Pull Back

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While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Cubist Pharmaceuticals opened Thursday down 2% after Wedbush downgraded the drug developer from "outperform" to "neutral."

So what: Along with the downgrade, analyst Gregory Wade reaffirmed his price target of $65, representing just 3% worth of upside to yesterday's close. While momentum investors might be attracted to the stock's solid year-to-date return, Wade believes the appreciation potential remains limited given Cubist's lack of significant revenue and profit growth.

Now what: Wedbush sees the stock's risk/reward trade-off as pretty balanced at current levels.

"CBST's 12-18 month top-line growth prospects appear to us to face significant challenges as CUBICIN stalls, and meaningful growth (on a percentage basis) from the pipeline and acquired assets is 12+ months out," noted Wedbush. "We see no room for multiple expansion from here, as well."

With Cubist shares up about 60% from its 52-week highs and trading at a 40-plus P/E, I'd agree that upside looks somewhat limited. 

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The article Why Cubist Pharma Is Poised to Pull Back originally appeared on Fool.com.

Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends Cubist Pharmaceuticals. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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