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Mizuho Upgrades Depomed On Increased Takeout Probability

Depomed Inc DEPO 14.99% reported lower-than-expected 1Q16 revenues of $104.8 million and EPS of $0.12. Mizuho’s Irina R. Koffler upgraded the rating for the company from Neutral to Buy, while raising the price target from $18 to $19. The analyst believes that the pullback in shares, following the disappointing results, offers an attractive entry point.

Revised Guidance And Improved Outlook

Depomed tightened its full-year revenue guidance from $485million-$525million to $490million-$520million. The SG&A guidance was raised from $180million-$195million to $185million-$195million, due to higher legal expenses. The company lowered its R&D guidance from $30million-$40million to $28million-$35million.

Depomed aims to achieve its full-year guidance figures by replacing 25 percent of its underperforming reps. Analyst Irina Koffler expects the company to achieve the lower end of its guidance.

The approaching Nucynta/ER generic settlement around 3Q16 and the increasing demand by an activist shareholder for replacements of board members could lend upside to Depomed’s shares, Koffler said.

Increased Takeout Probability

The analyst had earlier estimated the probability of Depomed’s takeout at 20 percent, at $20 per share. She now estimates a 50 percent-50 percent probability, as the Nucynta/ ER settlement approaches.

DateFirmActionFromTo
May 2016Mizuho SecuritiesDowngradesNeutralBuy
Mar 2016Northland SecuritiesInitiates Coverage onOutperform
Mar 2016Leerink SwannInitiates Coverage onOutperform

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