Why Endo Health Might Keep Rallying

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 Endo Health Solutions are largely holding on to yesterday's big gain after Cantor Fitzgerald upgraded the specialty health-care company from "sell" to "hold."

So what: Along with the upgrade, analyst Irina Rivkind boosted her price target to $54 (from $30), representing about 4% worth of downside to Wednesday's close. While value investors might be turned off by yesterday's 30% share-price spike -- fueled by the $1.5 billion acquisition of Paladin Labs -- Rivkind believes that Endo's risk profile is looking better given its strong operating momentum, and the Paladin deal's synergistic benefits.

Now what: Cantor Fitzgerald remains cautious about Endo's appreciation prospects. Rivkind noted:

We still think that management's guidance is too low for 4Q:13 (implying revenues of only $560-610M) which may unexpectedly happen with significant Lidoderm destocking and/or returns reserves, in our view. Post-Paladin Labs announcement, we are upgrading to HOLD and raising our price target to $54, which we believe represents the best-case scenario (encompassing M&A expectations) for the company.

With Endo shares now up about 125% from their 52-week lows, I'd agree that much of the deal's upside seems baked into the valuation already.

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The article Why Endo Health Might Keep Rallying 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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