After Recent Run, Penumbra Downgraded On Fears Its Upside Is Exhausted

The medical device company Penumbra Inc PEN issued a consensus-beating earnings report Nov. 7. 

The Analyst

BMO Capital Markets' Joanne Wuensch downgraded Penumbra from Outperform to Market Perform and reduced the price target from $117 to $110.

The Thesis

The analyst said she still likes the stock in the long term, but it currently trades with a premium to its peers. (See Wuensch's track record here.) 

Penumbra trades at 8.2 times 2018 EV/revenue and it has a growth rate of 20 percent, while its peers trade at 6.5 times with 25 percent growth, the analyst said.

The stock has historically traded at five to eight times EV/Revenue and nearly reached 10x for two months in the fourth quarter of 2017, according to BMO. 

Upside potential for the estimates exists, but the estimate beats have slowed, Wuensch said. The analyst said she expects Penumbra to expand its pipeline beyond a neurovascular and peripheral vascular strategy, and saidthe company is going to continue to benefit from an underpenetrated ischemic stroke market. Although Penumbra has much long-term potential, the risk-reward over the next 12 months is not as compelling, Wuensch said. 

The Price Action

The stock dropped more than 5 percent Tuesday, and it's trading almost 20 percent below its 52-week high, which it hit after the earnings report in November.