Piper cuts Endologix to neutral; PT $4.75 from $7, as Canaccord suspends coverage

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Piper Jaffray downgraded Endologix (NASDAQ:ELGX) to “neutral” from “overweight” and lowered its price target to $4.75 from $7 after the company meaningfully reduced revenue guidance for the year as it moves to revamp the business. The stock closed at $4.74 on Aug. 9.

“We understand the company’s decision for making these changes and actually think it’s a good idea but the risks here are steep (lingering employee disruption, product safety concerns), compared with the rewards (an impressive product pipeline and stock that has underperformed for years),” writes analyst Matt O’Brien. 

He said the new strategy is to refocus the organization on higher volume facilities, with a smaller sales force, and refined R&D efforts. “These actions (including restructuring), should weigh on the business until the second half of next year,” he added. As a result, “we are moving to the sidelines for the time being to see how the reorganization of the business takes shape.”

Separately, Canaccord Genuity suspended coverage of Endologix, citing a reallocation of analyst resources.

“While a new CEO now at the helm provides the company with a fresh perspective at the top, the absence of any market-moving news/data this year, paired with declining sales growth as well as GM compression, keep us on the sidelines,” writes Canaccord analyst Jason Mills. 

“Most concerning about this company as it’s structured today, in our view, is the firm’s lack of category diversification, with Endologix doubled-down in the highly competitive, mature abdominal aortic aneurysm market, where having an innovative and diversified product portfolio is becoming less relevant when risk-sharing models are increasingly taking center stage,” he added.

Sydney Stewart