Why NuVasive Is Poised to Pull Back

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

What: Shares of NuVasive slipped about 2% this morning after Goldman Sachs downgraded the surgical products company from "neutral" to "sell."

So what: Along with the downgrade, analyst David Roman lowered his price target to $22 (from $25), representing about 16% worth of downside to Friday's close. NuVasive shares have soared over the past year on rebounding fundamentals, but Roman believes that Mr. Market isn't paying enough attention to risks that still remain.

Now what: Goldman sees some possible headwinds in NuVasive's future.

"While lumbar fusion insurer pushback seems to have eased in recent quarters, our conversations with industry participants point toward pressure in other spinal implant categories, such as cervical (represents 10%-12% of NuVasive's sales and is expected to account for around 25%-30% of 2013E revenue growth)," noted Goldman. "The ongoing OIG investigation into NuVasive's CMS reimbursement filings is also a risk that is hard to quantify or assess outcomes."

With NuVasive shares up about 110% from its 52-week lows and trading at a massive P/E premium to its peers, I'd have to agree with Goldman that the risk/reward trade-off is particularly unattractive.

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

Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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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