Analysts Lower Expectations on Pharma Stocks IRWD and MDGL

Both stocks have been crushed in recent months

Nov 19, 2018 at 9:13 AM
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Drug stocks Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) and Madrigal Pharmaceuticals Inc (NASDAQ:MDGL) have both been struggling on the charts in recent months, and Wall Street is reacting. That is, shares of IRWD and MDGL are dealing with bearish analyst notes this morning, which we'll discuss in more detail below.

Starting with IRWD, Mizuho dropped its price target by roughly 35% to $15, though this is still a premium to the equity's close on Friday of $11.98. This actually marks the second time Mizuho has lowered its price target in just the past three weeks. Most analysts are already on the bearish side of things, with seven of the nine in coverage handing out "hold" or worse recommendations.

Short interest is also high on Ironwood Pharmaceuticals, accounting for 11% of the float after a 10% jump over the last two reporting periods. Based on the average daily trading volume, it would take short sellers more than nine sessions to buy back these shares.

And for good measure, it's worth pointing out that options activity -- while light on an absolute basis -- points to pessimism, with put buying almost doubling call buying over the past 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). All of this negativity is well deserved, since IRWD stock has fallen from a mid-July peak near $21 and touched a two-year low of $11.02 last week.

As for Madrigal Pharmaceuticals, Raymond James downgraded the security to "underperform" from "market perform," and Oppenheimer weighed in with a huge price-target cut to $200 from $300. This all actually comes after a big Evercore ISI upgrade on Friday, with the brokerage firm saying to buy after the stock's sell-off.

And sell off it has, with MDGL shares sliding from their June high of $325.98 to Friday's close at $129.94. The 50-day moving average blocked a breakout attempt earlier this month, but bulls may now be hoping the $120 level -- where the equity was positioned before a giant May bull gap -- could act as a technical floor.

Continued technical weakness could spark additional bear notes, too, since most of Wall Street is currently quite bullish. By the numbers, there are eight "strong buy" ratings on MDGL, compared to just two "holds." As such, the door is wide open for downgrades to add to the stock's struggles. There's also heavy skepticism from short sellers, who control 9.4% of the total float.

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