Why Allergan Gained This Morning

Why Allergan Gained This Morning

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 Allergan climbed 1.5% today after Wells Fargo upgraded the drug developer from market perform to outperform.

So what: Along with the upgrade, analyst Larry Biegelsen boosted his price target to $121-$122 (from $99-$100), representing about 13% worth of upside to yesterday's close. While contrarian traders might be turned off by the stock's surge in recent weeks, Biegelsen believes there's room to run given his view that Allergan's dry-eye drug Restasis will be protected from generic competition for much longer than Wall Street expects.

Now what: Wells now expects Restasis sales to grow 5% per year from 2016-17, versus its prior view of a 50% per year decline. "We are upgrading shares of AGN to Outperform from Market Perform as we believe that several new Restasis patents are very likely to be issued in the near-term and could delay generic competition well beyond our previous 2016 assumption," noted Wells. "Specifically, based on a review of the three patent applications that have been allowed by the US patent office, our patent consultant expects the patents to be issued in the coming months." With Allergan shares now up almost 15% over just the past two weeks and trading at a 30-plus P/E, however, I'd wait for a wider margin of safety before buying too heavily into that bullishness.

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The article Why Allergan Gained This Morning 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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Originally published